Chapter 17 ppt

Chapter – 17
International Operations
Management
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1. Describe the nature of international operations management
2. Analyze the supply chain management and vertical integration
decisions facing international operations managers
3. Analyze the meaning of productivity and discuss how international
firms work to improve it.
4. Explain how firms control quality and discuss total quality management
in international business.
5. Analyze how international firms control the information their managers
need to make effective decisions.
CHAPTER OUTLINE

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Vs
 Italian Cloth Chain
 Established at 1955
 First retail store in1968
 Presently 6500 outlets in
120 countries
 Spanish Retailer
 Established at 1975
 First international store in
1989
 Presently more than 3700
store in 75 countries

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Real Battlefield Between The Two Firms:
Inditex
 Upscale stores in high-fashion
centers
 Youth-oriented stores
 It doesn’t franchise- it own all of its
store
 Stock its store with new designs
twice a week
 Change the entire production line
within a few week
Benetton
 It has centralized design and production
 Tight control over costs, quality
 Styling and reasonable prices
 Manager track sales level and use this
information to plan
 Can fill any order through out the world
within 13 to 27 days
 Change the production line once in
every season

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Challenges For Both of The Firms:
 Some U.S. retailers such as- Abercrombie & Fitch, GAP, H&M have
become a strong competitor
 Urban Outfitters has invested in separate design center in Europe and
Asia
 The Urban Outfitter also invested in their own supply chain which
reduce both cost and time-like 24 hours
 H&M and Urban Outfitters are closing the supply gap, by getting new
product to market quickly and efficiently

Contents:
1)Definition of operation management
2)International operation management
3)The nature of international business
operation
4)International operations management
process
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How can we manage
international operation….?
9

Operations Management and International Operations Management
▪ Operations Management:
the set of activities an organization uses
to transform different kinds of inputs into
final goods and services.
▪ International Operations
Management:
the transformation-related activities of
an international firm
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Figure 17.1 : The International Operations Management Process (P. 501)
Strategic Context
•Differentiation
•Cost leadership
•Focus
Standardized vs. Customized
Production
Acquisition of
Resources
•Supply Chain
Management
•Vertical Integration
•Make-or-buy decision
Location Decisions
•Country-related issues
•Product-related issues
•Government policies
•Organizational issues
Logistics and Materials
Management
•Flow of materials
•Transportation options
•Inventory levels
•Packaging

Porters Three Generic Strategies
▪ Cost leadership:
Producing and marketing a good quality product
or service at a lower cost than competitors.
▪ Differentiation :
Creating a product or service that is perceived as
being unique “throughout the industry”.
▪ Focus Strategy:
A firms generic strategy based on appeal to a
narrow market segment within an industry .
Sourcre : Dess & lumkin, p.203
12

Examples Of Porters Three Generic Strategies
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• Cost leadership Strategy = Old
Navy
Clothing, Kia automobiles, Wal-Mart
etc.
• Differentiation Strategy = BMW
automobiles, Apple etc.
• Focus Low Cost Strategy = Ikea
home furniture, Southwest airline
etc.
• Focus Differentiation Strategy =
Rolex Watches, Rolls-Royce
automobiles etc.

Standardized Production
▪ The process of setting generally uniform
characteristics for a particular good or
service.
▪ Source:
http://www.businessdictionary.com/definition
/product-standardization.html
14

Customized Production
Customized Production is the
process of producing wide-market
goods and services which are
modified to satisfy a specific
customer's need.
Source:
http://www.businessdictionary.com/
definition/Customized
production.html
15

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Customized or Standardized Production ???

Contents:
1)Strategic Context of International
Operation Management
2)Different Types of Strategies
3)“ People, Planet and Profit”
Concept
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Strategic Context of IOM
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▪ Central role of OM is to create the potential for achieving superior
value for the firm
▪ A value-adding activity intended to create or add new value to the
organization’s inputs in ways that directly impact outputs.
▪ That is Operation Management is a value-adding activity intended
to create or add new value to the organization’s inputs in ways
that directly impact outputs. If operations can take $2 worth of
inputs to create $10 worth of goods or services, it has created
considerable value.

A Company Pursuing A Different Types of Strategy:
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• Differentiation Strategy
• Cost Leadership Strategy
• Focus(standardized or customized
production processes and technologies)

Differentiation Strategy:
▪ A differentiation strategy consist of creating differences in the firm’s product
or service offering by creating something that is perceived as unique and
valued by customers.
▪ The Operations Management function must be able to create goods or
services that are clearly different from those of the company’s competitors.
o Prestige or brand image(BMW automobiles , Rolex watches)
o Innovation(Apple’s IPad)
o Features(Honda Goldwing Motorcycle)
o Customer services( America Express, Ali pay)
o Design(Diesel blue jeans)
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Differentiation Strategy:
▪ For a firm like Porsche or Rolex that wants to compete on the basis of
product performance and status, cost will be less important than product
quality and design.
For example, Porsche has never
considered shifting its production
from Stuttgart to a lower-labor
cost locale because its highly
skilled and committed work
Force is vital to producing its high-quality cars21

Cost Leadership Strategy:
▪ A firm’s generic strategy based on appeal to the industry wide market
using a competitive advantage based on low cost.
▪ The Operations Management functions must be able to reduce the cost
of creating goods or services to the absolute minimum so the firm can
lower its prices while still earning an acceptable level of profits.
▪ In this case, cost and price issues are central, whereas quality may be
less critical.
▪ As a result, location production facilities where labor costs are especially
low may be highly appropriate
22

Cost Leadership Strategy:
▪ It requires a tight set interrelated tactics:
a) Aggressive construction of efficient-scale facilities
b) Vigorous pursuit of cost reduction from experiences
c) Tight cost and overhead control
d) Cost minimization in all activities in the firm’s value chain
For example, IKEA has become a global
retailer by offering a wide range of appealing
products at extremely low prices. It has 31
distribution centers in 16 countries and
uses a network of 1350 suppliers in 50
countries to purchase or manufacture products as inexpensively.
23
Strategic
Management(Dess
Lumpkin, Page: 204

Standardized or Customized Production Processes and Technologies:
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•If the firm uses standardized production processes and
technologies in every market where it does business,
then its operating systems can and almost certainly
should be-globally integrate. Such firms may choose to
adopt global product designs.
•To capture more global efficiencies generated by their
operations

Standardized or Customized
Production Processes and
Technologies
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On the other hand, if a uses a unique operations
system in each market, where it does business, such
goal integration is not only unnecessary but also
likely to be impossible. Often such firms adopt a
global area design to promote responsiveness of
their operations managers to local conditions
For example, Intel uses a standardized
operations management strategy
in that it makes its microprocessors
using the same manufacturing processes
around the world. Thus, it can share
technology between plants and freely
ship component parts between factories
in different countries

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Similarly, for years automakers have had a
goal of creating a global automobile that
could be manufactured and sold using the
same design and brand name everywhere
in the world. Ford has achieved that goal
and its focus has become the best-selling
car in the world (1,160,764 units in 2012).

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Conversely, Nestle tailors its mix of products, as well as their
ingredients and packaging, across markets. So although there
may be some sharing of production technology, Nestle tends to
operate each production facility as more of a self-contained unit.

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The “People, Planet and Profit”
Hong Kong Government asked shipping companies to voluntarily use low-sulfur
fuel to reduce pollution and offered a modest financial for them. A total of 18
shippers includes the largest container shipping company Maersk begin to incur.
These company saw that government incentive covers 40% cost of using high
fuel cost, but the other shipping company uses “standard fuel” which is cheaper
than high fuel cost. They claimed that their voluntary compliance has put them at
a competitive disadvantage to the dozen shippers using dirtier but cheaper fuel.
Along with the Maersk, the other companies threw down a gauntlet to the Hong
Kong Government to solve this problem that they faces. The government have
agreed to look into the situation, but many observers are confused about
sincerity in matters. Because air pollution readings in 2011 showed a substantial
fall in air quality over the preceding five years.

Contents:
1) Complexities of International operations
management
2) Definition of Production Management
3) Dimensions of Production Management
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The basic complexities inherent in operations management from the
production problem itself-where and how to produce various goods and
operations managers typically decide important and complex issues in three
areas.
1.RESOURCES:
Managers must decide where and how to obtain the resources the firm
needs to produce its products. Key decisions relate to supply chain
management and vertical integration.
Complexities of International Operations Management

31
2.Location:
Managers must decide where to build administrative
facilities, sales offices and plants; how to design them; and
so on.
3.Logistics:
Managers must decide on modes of transportation and
methods of inventory control.

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All firms, whether domestic or international, must address these issue.
However, resolving them in far more complicated for international firms. A
domestic manufacturer may deal with only local suppliers, be subject to one
set of government regulations, compete in a relatively homogenous market,
have access to an integrated transportation network, and ship its goods
relatively short distances. An international manufacturer, in contrast, is likely
to deal with suppliers from different countries and confront different
government regulations wherever it does .

33
International operations managers must choose the countries in which to
locate productions facilities, taking into account factors such as costs, tax
,laws, resource availabilities and marketing considerations. They also
must consider impact of facilities locations on the firms ability to respond
to change in customer tastes and preferences

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Production Management
Three main dimension of production management:-
1.Supply chain management
2.International facilities location
3.International logistics

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Contents:
Supply Chain Management
•Vertical Integration
•Make or Buy Decision

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Supply Chain Management
• Set of processes and steps a firm uses to
acquire the various resources it needs to
create its products
• Supply chain management is
the management of the flow of goods and
services and includes all processes that
transform raw materials into final products.
• The first step in developing a supply chain
management strategy is to determine the
appropriate degree of vertical integration.

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Vertical Integration
• Vertical integration is the extent to which a
firm either provides its own resources or
obtains them from other sources.
• Integration of steps of operation
management process
• Example: BP is a fully integrated
international business organization who is
engaged in worldwide exploration and
distribution of natural gas and crude oil. BP
owns and manages its exploration

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units, refineries, pipelines, trucks, and retail
outlets by themselves. From beginning to end the
manages the steps by themselves.
Example: Heineken NV is the worlds third
largest brewer is an example of relatively less
vertically integration. The firm buy grain and
other raw material from agriculture cooperatives.
They buy bottle, levels and cartons from another
supplier. And after production sells them to
distributor. They manage only manufacturing by
themselves and depends on other for other
steps.
Vertical Integration

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Make or Buy Decision:
In deciding how to acquire a the
component necessary to manufacture
a firms product there are two choices:
• Make the component itself
• Or Buy the component from
outside suppliers
This decision leads to other decision
criteria.

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• Size: Larger firms are more able to get benefit from making a
component because of economic of scale.
• Scope of operations: Making gives more scope of operation than
buying.
• Technological expertise: If a component require technological
expertise which a firm doesn’t have they may go for buying rather
than making.
• Nature of product: If there is uncertainty of a product demand a
firm should go for buying rather than making.
Influence Factors for the Make-or-Buy Decision

Moderate
Control
Low
Control
Low High
Degree of Strategic Vulnerability
LowHigh
PotentialforCompetitive
Advantage
Make or buy decision:
Competitive Advantage versus Strategic Vulnerability in the
Make-or-Buy Decisions
Strategic
Control

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Necessary Trade-offs in Make-or-Buy Decision
Cost
Control
RiskInvestment
Flexibility
Cost:
A firm may go for the decision
whichever is less costly.
Control:
Making gives more control over the
product, quality, delivery, design
and cost. And buying may cause
more dependency on external
suppliers.

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Risk:
Making increases financial and operating
risk in foreign market. It also bears
political risk in a country.
Investment in facilities, technology,
and people:
Buying from others lowers the firms level
of investment . By not making a
component gives opportunity to use that
capital in other productive uses.
Necessary Trade-offs in Make-or-Buy Decision
Flexibility:
Buying rather than making gives
more flexibility to change
suppliers as circumstances
changes. It is more accurate for
the businesses in which
technology is evolving rapidly.

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Contents:
• Consideration of Location
Decision in International
Business

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Location Decision:
To determine the location decision, the firm must consider the following
issues:
Country-Related Issues
Product-Related Issues
Government Policies
Organizational Issues

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Location Decision:
1. Country-Related Issues:
Resource Availability and Cost
Infrastructure
Country-of-origin Effects
a) Resource Availability and Cost:
Countries that enjoy large, low-cost endowments of a factor of production will
attract firms that factor of production.
- Heckscher-Ohlin Theory
For example, Bangladesh has attracted toy, footwear and textile
manufacturers for low cost of labor.

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b) Infrastructure:
It also affects the location of production facilities-
 Construction materials & equipments
 Materials supplier & construction contractor
c) Country-of-origin Effects:
Certain countries have “brand images” that affect product marketing.
For example,
- Japan for manufacturing high-quality products
- Italy for stylish designed product
On a experiment of Timex Watch it is found that-
▪ Consumer’s intention on buying has fall by 6% when listen that the watch was made in
Pakistan rather than Germany
1. Country-related Issues :

2. Product-Related Issues:
a. Value-To-Weight Ratio
b. Production Technology
a) Value-To-Weight Ratio:
It affects the importance of transportation cost.
▪ Low Value-To-Weight Ratio
▪ High Value-To-Weight Ratio

Low Value-To-Weight Ratio:
▪ Goods with LVWR are- iron ore, cement, coal, bulk chemical, raw sugar and
other agricultural goods
▪ Tend to be produced in multiple locations to minimize transportation costs
High Value-To-Weight Ratio:
▪ Goods with HVWR are- microprocessors, diamonds etc.
▪ Produced in a single location ,or
▪ Handful of location without loss of competitiveness
Value-To-Weight Ratio:

b) Production Technology:
▪ A firm must need to compare :
- its expected product sales with the efficient size of facility.
Large
Sales
Efficient-
Size
Facility
Operate
Many
Facilitie
s
Small
Sales
Efficient-
Size
Facility
Only
One
Plant

Example:
▪ The minimum efficient size of a petroleum refinery is
about 200,000 barrels per a day
▪ BP can produce up to 5 million barrels per days
▪ BP operates 17 refineries in the UK, Spain and
Colombia

3) Government Policies:
 The Stability of the Political Process
 National Trade Policies
 Economic Development Incentives
 The Existence of Foreign Trade Zones (FTZ)

a) The Stability of the Political Process:
▪ Government can alter fiscal, monetary and regulation policies
▪ Unforeseen changes in taxation policy, exchange rates, inflation, and labor
laws
b) National Trade Policies:
▪ A firm may be forced to locate a facility within a country which has high
tariff and other trade barriers
- For example, Toyota, Nissan and Mazda built factories in the USA to
evade export restraint imposed by the Japanese government
- HP built a PC manufacturing facility in Sao Paulo to avoid Brazilian
import taxes
3) Government Policies:

▪ Countries often seek to attract new factories by offering international
firms-
 Inexpensive Land
 Highway Improvement
 Job-training Programs
 Discounted Water and Electric Rates
For example, The governments of New Zealand and South Africa offer
filmmakers incentives to shoot in their countries.
On the other hand, the government of France sold its suburban
land at a greatly discounted rate to build Disneyland Paris
c) Economic Development Incentives:

d) The Existence of Foreign Trade Zones (FTZ):
• FTZ allows international firms to import
products at duty free
• It gives the firm greater flexibility and
creates avenues for lowering costs
- For example, the Port of Houston used
primarily for storage by non-U.S. automakers,
where Toyota, Nissan can store their automobiles
without any payment of import tariff.

4) Organizational Issues:
 Firm’s Business Strategy
 Firm’s Organizational Structure
 Firm’s Inventory Management Policies

Firm’s Business Strategy may affect its location decision in various ways.
Such as-
▪ Firm that adopt cost leadership strategy must seek out low-cost
location
▪ Firm that focuses on product quality must locate areas that have
adequate skilled labor and managerial talent
- For Example, Benetton does this with its Italian
production facilities for better control product design and quality
a) Firm’s Business Strategy:

▪ Some firms find that strategic goals can be better met by dispersing
facilities in various location
- For example, Intel has manufacturing and assemble plant in
Ireland, Israel, Malaysia, China, Costa Rica and Vietnam for low-cost
resources
▪ To protect firm against foreign exchange rate fluctuation some firms also do
multiple production facilities
-For example, FMC often shifts orders for its food-packaging
machinery from Chicago to Italy or vice versa. It depends on the relative
values of the dollar and the euro

▪ Adopting a global area structure decentralize the authority to area
managers. Here , factories are locating within the area to produce
goods and sold within the area
▪ Firm having a global product structure will locate factories
anywhere in the world to meet the firm’s cost and quality
performance goals
b) Firm’s Organizational Structure:

-The firm need to balance the costs of maintaining inventory against
the costs of finished goods.
The Cost
of
Maintaini
ng
Inventor
y
The Cost
of
Finished
Goods
Cost of
Maintaining
Inventory:
- Storage
- Spoilage and
loss
- Opportunity
Cost
c) Firm’s Inventory Management Policies:

They affect each other because of the distances and transit
times involves in shipping goods
- Wal-Mart purchases TV for its U.S stores from a
Taiwanese factory. Wal-Mart's inventory level will be higher,
if it purchases from the Mexican factory
Factory
Location
Level of
Inventory

Just-in-time Inventory Management System:
 Firm’s suppliers deliver their products directly to the firm’s manufacturing center
 Here the supply is delivered as just as their need for production
 Suppliers often locate their facilities near to their major customers to meet the
JIT requirements

Contents:
•“ Bringing the World into Focus”
Concept.
•Definition of International Logistics
and Material Management
•Domestic Vs International Material
Management
63

Moving here and there……………
It seems like yesterday that manufacturers were moving their production
facilities to Mexico. A business friendly government combined with an
abundant supply of low-cost labor made the northern Mexican border a perfect
place to setup shop. The NAFTA made it relatively painless for businesses to
move materials and finished goods back and forth across the border as
needed.
But the good times slowed in the early years of the 21 century as the Mexican
wages crept higher and higher and china emerged as the world’s exciting new
manufacturing center. So, by the droves businesses shut down their Mexican
operations and moved china. And the next decade chain's burgeoning
manufacturing prowess firmly established that country as the low cost
manufacturing hub.

International logistics & materials management
International logistics:
▪ Is the management of the flow of materials, parts, supplies,
and other resources, from supplies to the firm;
▪ the flow of materials, parts supplies, and other resources
within and between units of the firm itself;
▪ And the flow of finished products, services, and goods from
the firm to customers.

For example; For multinational firms major shipping ports like
Singapore play a major role in international logistics.
The first two sets of activities usually are called materials
management and the third one is called physical distribution.
Here we focus on the material management area of logistics.

Domestic Vs International Materials Management
There are three basic factors that differentiate domestic &
international materials management functions.
1. Distance involve in shipping
2. Sheer number of transport modes
3. The regulatory context

1.Distance involve in shipping:
Shipments within even the largest countries seldom travel more than a
couple of thousand miles, and many shipments travel much less.
For example, the road distance between New York city and Los
Angeles is around 2800 miles, but the distances between New York
& Warsaw, Tokyo, and Sydney are 4300 miles, 6700 miles, and
9900 miles respectively. Thus, assembling component parts in
Kansas city, Chicago, & St. Louis and then shipping them to
Cincinnati for final assemble is much more easier than assembling
parts in San Diego, Montreal, and Cairo and then shipping them to
Singapore for final assembly.

2. Sheer number of transport modes:
Shipments within the same country often use only a single mode of
transportation, such as truck or rail. However, shipments that cross
national boundaries, and especially shipments travelling great
distances, almost certainly involve multiple modes of transportation.
For example: A shipments bound from Kansas city to Berlin may use
truck, rail, ship, and then rail and truck again.

▪ 3. The regulatory context: (much more complex then domestic
material management)
Shipments that cross through several countries are subject to the
regulations of those countries.
For example: NAFTA have sough to streamline international
shipping guidelines and procedures , transporting goods across
national boundaries is still complex and often involves much red
tape.

Contents:
•Definition of International
Service Operations
•Characteristics of
International Services.
72

International Service Operations
The service sector has emerged in recent years as an increasingly
important part of many national economics, especially in developed
countries. For example the service sector accounts for three-fourths of
U.S. gross domestic product and is the source of most jobs.
An international service business is a firm that transform resources into
an intangible output that creates utility for its customers.
An example of international services are British Airway’s
transporting of passengers from London to New Delhi.
International Service Operations:

International Service Operations characteristics :
Services have several unique characteristics that create special
challenges for firms that want to sell services in the international market
place.
1.Services are intangible
2.Services generally are not storable
3.Services often require customer participation
4.Many services are tied to the purchase of other products
Others: ( source: www.servicecharactristics.com)
Variability Inseparable Lack of ownership Perishable

75
Other characteristics:
1.Variability
2.Inseparable
3.Lack of ownership
4.Perishable
Others: ( source: www.servicecharactristics.com)

Characteristics of International service:(contd.)
Services are intangible:
A customer who goes a store to buy an Apple iPad has tangible product
but a customer who goes to an accountant to obtain advice leaves with
intangible knowledge that can not be hold or seen.
Services generally are not storable:
Often they can not be created ahead of time and involved or saved for
future usage. A service call to repair a broken washing machine can
occur only when the technician is physically transported to the site of
the broken appliance.

Services often require customer participation:
International services such as truism can not occur without the physical
presence of customer. Because of customer involvement in the delivery
of service, many service providers need to customize the product to meet
the purchaser’s needs.
Many services are tied to the purchase of other products:
Many firms offer product support services such as assistance with
operating, maintain, or repairing products for customers. For example,
Swedish appliance maker AB Electrolux manufactures vacuumed
cleaners, refrigerators, washing machines, and other appliances. The
firm also has service operations set up to repair these products for
customers who buy them.

Other characteristics:
Variability:
Same service may vary from firm to firm. For example items of KFC may differ
from local firm.
Inseparable:
Service can not be separated from the individual who serves it to customers. For
example salon service or service of beautician.
Lack of ownership:
Customers do not get any ownership title from service provider. For example,
traveler gets nothing but a ticket and shift of location.
Perishable:
Services are all most perishable for an example, seat of a plane journey or a
restaurant will loss its value when it takes off or it closed its door.

Contents:
•The Role of Government in International
Service Trade
79

The Role of Government In International Services Trade
▪ Government’s contribution is an important dimension of
International services market.
▪ Governments have the supreme power to determine the lot
of International Services trade.

Government Initiatives:
▪ Protect Local Professionals:
Many Governments seek to protect local professionals mostly in the
field of
 Accounting
 Medicine
 Law
Govt. upheld Domestic Standards & Credentials by restricting
the foreigners ability to practice

▪ Stipulate Govt. Regulations:
Govt. often determine which firms are allowed to enter service markets
& The Prices the firms may offer.
For Example, Foreign Banks & Insurance Firms working in USA ,are
heavily regulated & compelled to follow the directives of numerous state
& federal regulatory agencies.

The Role of Government In International Service
Trade
▪ Governmental Permission Requires:
In many countries, telecommunications, transportation, & utility firms
need governmental permission to serve individual markets.
For Example, Airline routes between USA & Australia are conducted by
a bilateral agreement. That is a US carrier can fly passengers between
the United States to….
USA Sydney
Melbourne

The Role of Government In International Service Trade
Reductions in Barriers:
Deregulation & reduced trade barriers to service trade is high priority of
WTO.
 They have created opportunities for firms in industries like Banking,
Telecommunications to seek & expand new markets in Domestic
Foreign areas.
 These changes have also triggered various ways for conducting
i. Strategic Alliance
ii. Cross Border Investment
iii. New start up companies
All over the globe.

Contents:
• Managing Service Operations
• Basic Issues of Service Operations
85

MANAGING SERVICE OPERATIONS:
The actual management of international service
operations involves a number of basic issues. They
are-
1. Capacity Planning
2. Location Planning
3. Facilities Design & Layout
4. & Operations Scheduling.

1.Capacity Planning:
Capacity Planning is deciding how many customers the firm will be able to serve at
one time. Because of the close customer involvement in the purchase of services,
capacity planning affects the quality of the services provided to the customers.
For example:
McDonald’s first restaurant in Russia was considerably larger than many of its
other restaurants to accommodate an anticipated higher level of sales volume.
Despite this larger size ,customer waiting times at the Moscow Restaurant were
much longer than those in the United States. The lack of restaurant alternatives
made Muscovites more willing to stand in long lines for their “Big Mek”. In contrast ,
If customers had to wait a half-hour to be served in Boulder ,Columbus or even
Paris. McDonald’s would lose much of its business.

2.Location Planning:
Location Planning is important for international service operations. By definition
most service operations must be close to the customers they plan to serve.
(Exceptions might be information providers that rely on electronic
communication). Indeed, most international service operations involve setting
up branch offices in each foreign market and then staffing each office with
locals.
3.Proper Look & Layout:
International Service Facilities also must be carefully designed. So the proper
look & layout are established. At times; firms operating Internationally may
highlight their foreign identity or blend their home country heritage with the local
culture. Firms should have knowledge about foreign countries culture or ethics
or values.

Most U.S. donut dunkers, for instance, were unaware that Dunkin
Donuts was owned by a British Conglomerate for many years. But they
should be aware about British Conglomerate’s reputation in Dunkin
Donuts.
4.Operations Scheduling:
International Service firms must schedule their operations to best meet
the customer’s needs.

90
For example, Airlines transporting passengers from the United States
to Europe generally depart late in the evening. Doing this gives
passengers the opportunity to spend some of the day working before
the depart, and they arrive in the early morning the next day.
In Contrast, westbound flights usually leave Europe in midmorning
and arrive in the United States late that same afternoon. This
scheduling provides an optimal arrangement because it factors in
customer preferences, time zones, jet lag, and aircraft utilization
and maintenance requirements.

1. Recognize the service component in an organization:
The nature of service, process of providing service, decisions effected by service
should be evaluated more & more.
2. Understanding the service encounter:
Knowledge about service organizations, customer participation, encounters by
dominating component can be a great help in the service operation management.
3. Understand the customer factor in service success:
Customer factor means his/her expectations, attitudes and perceptions regarding
Service. Also the dimensions of service quality like reliability, responsiveness,
assurance , empathy ,tangibility etc.

4. Understand how to formulate a service strategy:
Strategy formulation process greatly depends on environment analysis,
SWOT, corporate level strategy, business level strategy, automation etc.
5. Learn OM tools & techniques useful in service operation
management:
We should have clear idea about project management, quality control
,equipment maintenance policies etc.

93
Now, service operations perform the activities and processes required
to deliver & manage services at a greed levels to business users &
customers. It is also responsible for on-going management of the
technology that is used to deliver & support services.
So, managing service operations effectively is very important for any
organization.

Contents:
•Definition of Productivity
•Importance of Productivity
•General Strategies for Enhancing
Productivity
94

Managing productivity in international business
▪ Productivity:
Productivity is an economic measure of efficiency that summarizes the values of
outputs relative to the value of inputs used to create the outputs ,i.e. output per
unit of input.
▪ Importance of productivity:
 It helps to determine a firm’s overall success and contributes to it’s long-term
survival.
 It contributes directly to the overall standard of living within a particular
country.

Managing productivity in international business:
 General strategies for Enhancing Productivity:
There are several general strategies a firm can pursue in its efforts to
maintain or boost productivity.
 Three approaches in particular often help firms become more
productive.
1.Spend more on research and development (R & D)
2.Improve operations and
3.Increase employee involvement

1.Spend more on research and development (R & D):
▪ Through R&D firms can identify new products, new uses for existing
products, and new methods for making products. Each of these
outcomes in turn contributes directly to higher productivity.
▪ Ex: U.S. firms often spend more on
R&D then do their competitors ,but the
gap is narrowing as more foreign firms
increasingly invest in R&D .
Strategies for Enhancing Productivity

2. Improve Operations:
A firm seeking to increase productivity needs to examine how it does things
and then look for ways to do them more efficiently.
Ways to improve operations and boost productivity are:
 Replacing outmoded equipment
 Automating selected tasks
 Training workers to be more efficient
 Simplifying manufacturing process
Strategies of increase productivity

99
Japanese manufactures have been especially successful at increasing
productivity through improved operations. JIT manufacturing and
inventory control techniques, consistent investments in technology and
a concentration on efficiency have paid big dividends for many
Japanese firms
For Example

3.Increase employee involvement:
The idea is that if managers give employees more say in how they do their jobs, those
employees will become more motivated to work and more committed to the firms goals.
Further, because they are the ones actually to do the jobs, the employees probably have
more insights than anyone else into how to do the jobs better.
 Employee involvement can be
increased by self- managed teams .
Groups of workers are formed into
teams, each of which has considerable
autonomy over how it does its job.
Strategies for enhancing productivity

Example: Lufthansa currently uses employee participation in its effort to
cut costs. The firm’s overhead had grown out of control, and it needed to be
reduced for the firm to remain competitive. Lufthansa wanted to cut its payroll
in Germany but was stymied because of two strong national unions. So, the
firm enlisted the assistance of the unions to meet its cost –cutting goals.
Representatives from the firm and both unions to meet regularly to devise
ways to trim payroll costs without resorting to massive layoffs. So far the cuts
have focused on reducing work rules and eliminating jobs through attribution
and early retirement
Increase employee involvement

Contents:
•Definition of Quality
•Importance of Maintaining Quality in IB
•Managing Quality Standards
•Quality Improvement with TQM
•Key Component of TQM
102

Quality
Totality of features and characteristics of a
product or service…
…that bear on its ability to satisfy stated
needs
(American Society for Quality Control)

Some Korean companies
initially had difficulty
competing in Europe because
of quality
Europeans perceived that
Korean products were not the
same quality as European firms
made
Then Korean companies
overcome this problem by
establishing strategic
alliance and working on
ISO 9000
Importance of Maintaining Quality in IB

Managing Quality
• A series of quality assurance standards designed by the international
Organization for Standardization (ISO) to ensure consistent product
quality under many conditions
• A comprehensive set of environmental standards that encourages
companies to conduct business in a cleaner, safer, and less wasteful way;
providing a uniform set of global standards
ISO 9000
ISO 14000
 Companies must pass a rigorous certification process under product
testing, employee training, record keeping, supplier relations and
repair policies.

Quality improvement with Total Quality
Management (TQM)
TQM is an
integrated effort to
systematically and
continuously
improve the quality
of product and
services.
TQM start with a
strategic
commitment to
quality which must
be taken by top
management.
Strategic
commitment to
quality rely on four
operational
components to
implement quality
improvement, which
are..
Employee
Involvement
High-Quality Material
Up-to-Date Technology
Effective Methods
TQM

Key Components of Total Quality Management
Statistical process control
is family of
mathematically based
tools for monitoring and
controlling quality.
Its basic purposes are:
 To define target level
of quality
 To specify acceptable
range of deviation.
 To ensure product
quality is hitting target
Benchmarking is a process of legally
and ethically studying how other
firms do something in a high quality
way and then either imitating or
improving on their methods.
Benchmarking
Statistical
Process
Control

Contents:
•Definition of Information
•Importance of Information
Management in IB
•Verities of Information Management
•Managing Information by
Information System
108

Information is data in a form that is of value to a manager in making decisions
and performing related tasks
Information
 Information management is necessary for decision making process.
 Managers use Information to better understand their firms environment.
 Managers use information to help them decide how to respond to the
environment.
 Information is also used for setting strategic goals and map out strategic plans.
Importance of Information Management in
IB

Variety of Information Management Depends on the
Type Organization Design of the Firm
If a firm is using related
diversification, it is important
that various parts of the firm be
able to communicate with other
parts so the firm can most
effectively capitalize on the
potential synergies of the strategy
If a firm is using unrelated
diversification then
communication among the various
businesses within the firm will be
far less important.
Related Diversification
Unrelated
Diversification

Variety of Information Management Depends on the
Type Organization Design of the Firm (Contd..)
If the firm is highly
centralized, information
systems are vital for top
managers so they can
maintain the control they
seek from using this
particular design.
If the firm is using a
decentralized form of
organization design, its top
managers will need and expect
somewhat less information
reporting by managers of
various divisions
Centralized Decentralized

Managing Information by Information System
Information System:
An information system is an organized combination of
people, hardware, software, communications networks
and data resources that collects, transform, and
disseminates information in an organization.
Characteristics of Information System:
 Information system organize data into a form that is
much more useful- to give information.
 Information system allow information to be analyzed- to
give knowledge.

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