The Globalization of Operations: Facts and Causes Sources: Dornier et al., GOL, 1998 Flaherty, GOM,...
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Transcript of The Globalization of Operations: Facts and Causes Sources: Dornier et al., GOL, 1998 Flaherty, GOM,...
The Globalization of Operations: Facts and Causes
Sources: Dornier et al., GOL, 1998 Flaherty, GOM, 1996
Introduction
Definitions Multinational Firm
Majority ownership in either foreign sales organization/Dstn networks of prodn plantsActive in more than one countryMay have a borderless global culture and tailor production and markets to local needs
Global FirmCoordinated production, sales, distribution and administrative networks
Domestic FirmAll others
Globalization Models
Product Life Cycle ModelUppsala Model (Psychic Distance)Monopolistic Advantage TheoryOligopolistic Reaction (Risk Reduction)Network Theory
Introduction
Increase in Globalization1/5 of o/p of U.S. firms produced abroad
1/4 of all imports/exports are between foreign affiliates of parent U.S. companiesBy early 1990s, U.S. multinationals accounted for 53% of all firms and 89% of worldwide sales of all companies
Why?Global reach important to firm‘s survival (50% more likely to survive)More profitable and faster growth
Causes Of Globalization
MARKET DRIVERS
MANUFACTURING
COST PROCESS TECHNOLOGY
DRIVERS GLOBALIZATION DRIVERS
POTENTIAL
POLITICAL AND
ECONOMIC DRIVERS
Changes In Global Markets
Increased foreign competition
Growth in foreign demand
Shorter product lives, more customization, faster response
Presence in state-of-the-art markets
Changes In Global Markets
Increased Foreign Competition
Facts• Import penetration of American market• Increase in foreign owned capacity
Implications• Compete against world class competition• Even small firms have global concerns
Changes In Global Markets
Growth in Foreign Demand
Facts• Shift in relative size of U.S. Market
– 1965: 40% of world GDP– 1987: 30% of world GDP
• Increasing portion of future sales abroad
Implications• Global presence helps smooth demand
fluctuations• Global presence as a competitive threat
Changes In Global Markets
Shorter product lives, more customization, faster response
Examples• Short product lives
– DRAM chips: 3-4 years– Automobiles: less than 4 years
Implications• Product life cycle approach to int‘l prodn not valid• Simultaneous product development in all markets• Local presence needed for customization and fast
response
Changes In Global Markets
Presence in state-of-the-art market for maintaining technological edge
Examples of state of the art markets •Japan: semiconductor process equipment,
consumer electronics, machine tools•Germany: machine tools•U.S.: Aerospace, computers, software
Prodn facilities in state of the art markets serve as•Market sensors•Learning laboratories
Global Dissemination Of Technology
Global location for access to critical components (supplier involvement)
Examples• Canon (engines for fax machines and laser
printers)• Fanuc (machine tool controllers)
Global location for access to process technology Examples• U.S. Semiconductor manufacturers in Japan
(photolithography technology)• IBM & Xerox in Japan (video technology)
Global Dissemination Of Technology
Technology driven joint venturesExamples• Autos (GM-Toyota, Chrysler-Mitsubishi,
Ford-Mazda)
Global location of R&D facilitiesDesign of customized productsAccess to high-quality, low-cost engineering talent.
Changes In Cost Priorities
Moving away from offshore strategies driven by low labor cost mentality
Diminishing importance of direct labor cost“Island hopping” syndrome
New competitive priorities drive global location
Access to marketsTimely deliveryAccess to skilled workersQualityAvailability of suppliers
Changes In Cost Priorities
Importance of capital costs and government subsidies in certain industries
Government subsidies (examples: Ireland, U.S.)• Interest rate subsidies• Tax holidays• Cost sharing on plant and equipment
Increasing capital intensity of production facilitiesExamples• Semiconductor plants
1986: 50m$-100m$;1994: 250m$-400m$ (R&D over 1B$)
Changes In Cost Priorities
Manufacturers share costs and risksExamples• Texas Instruments and Hitachi• Motorola and Toshiba• IBM and Siemens
share production facilities for 16 MB DRAM chips
Need for increased capacity utilization leads to pursuit of global markets
Political and Macroeconomic Factors
Significant exchange rate fluctuations force development of facilities in local markets
Development of regional free trade groups force companies to rethink regional production strategies
Examples•European community•U.S.-Canada-Mexico (NAFTA)
Political and Macroeconomic Factors
GATT deterred tariff increases or additions and opened new markets
The imposing of non-tariff barriers favors globalization of production strategies
Voluntary export restraints (U.S. - Japan: autos)Trigger price mechanisms (U.S. semiconductor and steel industry)Local content requirement (European auto and semiconductor industry)Technical standards and health regulationsGovernment procurement policies
Outlook
Integration of extended international activities into a coordinated global system
Restructuring the operations network (duplicated processes etc.)
Global expansion of small and medium sized firms