Chapter 17:

International
Operations
Management

International Business, 4th Edition

Griffin & Pustay
17-1 ©2004 Prentice Hall
 Chapter Objectives_1
 Describe the nature of international
operations management
 Analyze the supply chain management and
vertical integration decisions facing
international production managers
 Analyze the meaning of productivity and
discuss how international firms work to
improve it
17-2 ©2004 Prentice Hall
 Chapter Objectives_2

 Explain how firms control quality and

discuss total quality management in
international business
 Analyze how international firms
control the information their managers
need to make effective decisions

17-3 ©2004 Prentice Hall

 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
17-4 ©2004 Prentice Hall
 Figure 17.1 The International Operations
Management Process
Strategic Context
•Differentiation
•Cost leadership
•Focus

Standardized vs. Customized

Production

Logistics and
Acquisition of
Location Decisions Materials
Resources
•Country-related issues Management
•Supply Chain
•Product-related issues •Flow of materials
•Management
•Government policies •Transportation options
•Vertical Integration
•Organizational issues •Inventory levels
•Make-or-buy decision
•Packaging

17-5 ©2004 Prentice Hall

 Complexities of
International Operations Management
 Resources
 Location
 Logistics

17-6 ©2004 Prentice Hall

 Production Management

 Supply chain management: set of

processes and steps a firm uses to
acquire the various resources it needs
to create its products
 Vertical integration: extent to which a
firm either provides its own resources
or obtains them from other sources
17-7 ©2004 Prentice Hall
 Figure 17.2 Basic Make-or-Buy Options

17-8 ©2004 Prentice Hall

 Influence Factors for the
Make-or-Buy Decision
 Size
 Scope of operations
 Technological expertise
 Nature of product

17-9 ©2004 Prentice Hall

Figure 17.3 Competitive Advantage versus Strategic
Vulnerability in the Make-or-Buy Decisions

Potential for Competitive Advantage

High
Strategic
Control

Moderate
Control

Low
Low

Control
High Low
Degree of Strategic Vulnerability
17-10 ©2004 Prentice Hall
 Necessary Trade-offs in Make-or-Buy
Decision
 Cost
 Control
 Risk
 Investment
 Flexibility

17-11 ©2004 Prentice Hall

Factors affecting Location Decisions

 Country-Related Issues
 Product-Related Issues
 Government Policies
 Organizational Issues

17-12 ©2004 Prentice Hall

 Country-Related Issues

 Resource availability
 Cost
 Infrastructure
 Country-of-origin effects

17-13 ©2004 Prentice Hall

 Country-related issues play key roles in location
decisions for manufacturers

17-14 ©2004 Prentice Hall

 Product-Related Issues

 Value-to-weight ratio
 Technology
 Importance of customer feedback

17-15 ©2004 Prentice Hall

 Government Policies

 Stability of political process

 National trade policies
 Economic development incentives
 Existence of foreign trade zones (FTZ)

17-16 ©2004 Prentice Hall

 Organizational Issues

 Business strategy
– Cost leadership
– Differentiation
 Organizational structure
 Inventory management policies
– Just-in-time (JIT) inventory management
system
17-17 ©2004 Prentice Hall
 International Logistics and
Materials Management
 International logistics: management of the
– flow of materials, parts, supplies, and other
resource from suppliers to the firm
– flow of materials, parts, supplies, and other
resources within and between units of the firm
itself
– flow of finished products, services, goods from
the firm to customers

17-18 ©2004 Prentice Hall

 Differences in Domestic and
International Materials Management
 Distance involved in shipping
 Number of transport modes
 Complexity of regulatory context

17-19 ©2004 Prentice Hall

 International Service Operations

 International Service Business: firm that

transforms resources into an intangible
output that creates utility for its customers
 Characteristics:
– Intangible
– Not storable
– Require customer participation
– Tied to the purchase of other products
17-20 ©2004 Prentice Hall
 This BP Connect store allows customers to buy BP
petroleum products, coffees from South America,
and to access the Internet from the pump

17-21 ©2004 Prentice Hall

 Productivity

 Economic measure of efficiency that

summarizes the value of outputs
relative to the value of inputs used to
create the outputs
– Helps to determine firm’s overall success
– Contributes to long-term survival
– Contributes to overall standard of living
17-22 ©2004 Prentice Hall
 Strategies for Enhancing Productivity

 Spend more on research and

development
 Improve operations
 Increase employee involvement

17-23 ©2004 Prentice Hall

 Managing Quality in
International Business
 Quality: totality of features and
characteristics of a product or service that
bear on its ability to satisfy stated or
implied needs
– American Society for Quality Control
 ISO 9000: 2000
– International set of quality guidelines
– Basis for quality certification
– International Organization for Standardization
17-24 ©2004 Prentice Hall
 Figure 17.4 The Essential Components
of Total Quality Management
Strategic Commitment
To Quality

Employee High Quality Up-to-Date Effective

Involvement Materials Technology Methods

17-25 ©2004 Prentice Hall

 Total Quality Management
 TQM: Integrated effort to systematically and
continuously improve the quality of an
organization’s products and/or services
 Statistical process control: family of
mathematically based tools for monitoring and
controlling quality
 Benchmarking: 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
17-26 ©2004 Prentice Hall