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Global Business Today Ninth Edition Chapter 15
Global Production and Supply-Chain
Management
Chapter Outline
OPENING CASE: Apple: The Best Supply Chains in the World?
INTRODUCTION
STRATEGY, PRODUCTION, AND SUPPLY-CHAIN MANAGEMENT
WHERE TO PRODUCE
Country Factors
Management Focus: Philips in China
Technological Factors
Production Factors
The Hidden Costs of Foreign Locations
Management Focus: GE Moves Manufacturing from China to the United States
MAKE-OR-BUY DECISIONS
GLOBAL SUPPLY- CHAIN FUNCTIONS
Global Logistics
Global Purchasing
MANAGING A GLOBAL SUPPLY CHAIN
Role of Just-in-Time Inventory
Role of Information Technology and the Internet
Coordination in Global Supply Chains
Interorganizational Relationships
SUMMARY
CRITICAL THINKING AND DISCUSSION QUESTIONS
CLOSING CASE: H&M: The Retail-Clothing Giant
Global Business Today Ninth Edition Chapter 15
Learning Objectives
1. Explain why production and supply-chain management decisions are of central importance to
many global companies.
2. Explain how country differences, production technology, and production factors all affect the
choice of where to locate production activities.
3. Recognize how the role of foreign subsidiaries in production can be enhanced over time as they
accumulate knowledge.
4. Identify the factors that influence a firm’s decision of whether to source supplies from within
the company, or from foreign suppliers.
5. Understand the functions of logistics and purchasing (sourcing) within global supply chains.
6. Describe what is required to efficiently manage a global supply chain.
Chapter Summary
This chapter explores the issues associated with global operations management. At the outset, the
author defines the terms operations, production, and material management, and then goes on to
discuss the importance of total quality management (TQM) and ISO 9000. Particular emphasis is
placed on the topics of where international firms should locate their manufacturing operations and
how international firms decided whether to make or buy component parts. In regards to the
former, the authors argue that country factors, technological factors, and production factors
influence a manufacturer’s location decision. In regard to make-or-decisions, the author provides
a balanced discussion of the advantages and disadvantages of buying components parts (in the
world marketplace) opposed to making them in-house. The chapter concludes with a discussion of
what is required to efficiently manage a global supply chain.
Opening Case: Apple: The Best Supply Chain in the World
Summary
The opening case explores global production and supply chain management at Apple. Apple has
been recognized as being a leader when it comes to supply chain management especially for its
ability to increase its volume in both hardware and software. Now, with the goal of capitalizing on
the growing market in China, Apple is quickly establishing its presence in the country by hiring
not only engineers, but also supply chain managers to ensure that it brings its competitive
advantage associated with its supply chain to the country. Discussion of the case can revolve
around the following questions:
Global Business Today Ninth Edition Chapter 15
QUESTION 1: What differentiates Apple from other companies when it comes to supply chain
management?
QUESTION 2: As a CEO of a company producing consumer electronics, what can you learn from
Apple’s experiences?
Teaching Tip: To learn more about Apple, go to {https://www.apple.com/}.
Lecture Note: To extend this case, consider
{http://www.supplymanagement.com/news/2013/apple-named-worlds-best-supply-chain/},
{http://www.businessweek.com/articles/2014-09-18/some-apple-suppliers-get-cut-off-must-
scramble-for-new-business}, and {http://www.businessweek.com/news/2014-10-29/gt-advanced-
describes-unsustainable-apple-relationship}.
Chapter Outline with Lecture Notes, Video Notes, and Teaching Tips
INTRODUCTION
A) In this chapter we look at five questions:
• Where in the world should productive activities be located?
• What should be the long-term strategic role of foreign production sites?
• Should the firm own foreign production activities, or is it better to outsource those
activities to independent vendors?
• How should a globally dispersed supply chain be managed, and what is the role of Internet-
based information technology in the management of global logistics?
• Should the firm manage global logistics itself, or should it outsource the management to
enterprises that specialize in this activity?
STRATEGY, PRODUCTION, AND SUPPLY-CHAIN MANAGEMENT
Global Business Today Ninth Edition Chapter 15
A) This chapter focuses on two activities - production and supply-chain management - and
attempts to clarify how these activities might be performed internationally to (1) lower the costs of
value creation and (2) add value by better serving customer needs.
B) Production refers to activities involved in creating a product. Supply-chain management
refers to the integration and coordination of logistics, purchasing, operations, and market channels
from raw material to the end-customer. These two activities are closely linked because a firm’s
ability to perform its production activities efficiently depends on a timely supply of high-quality
material and information inputs, for which purchasing and logistics are critical functions.
C) The objectives of the production and supply chain management functions (purchasing and
logistics) are to lower the costs, and increase product quality by eliminating defective products
from both the supply chain (both upstream and downstream) and the manufacturing process.
These two objectives are interrelated (see Figure 15.1 in the text).
D) There are three ways in which improved quality control reduces costs. First, productivity
increases because time is not wasted manufacturing poor quality products that cannot be sold.
This saving leads to a direct reduction in unit costs. Second, increased product quality means
lower re-work and scrap costs associated with defective products. Third, greater product quality
means lower warranty costs and time fixing defective products. The net effect is to lower the costs
of value creation by reducing both manufacturing and service costs.
E) The main management technique that companies are utilizing to boost their product quality is
Six Sigma quality improvement methodology, a direct descendant of total quality management
(TQM). TQM is a management philosophy that takes as its central focus the need to improve the
quality of a company’s products and services.
F) Many companies have adopted a successor to TQM programs known as a Six Sigma program
(a statistically based philosophy that aims to reduce defects, boost productivity, eliminate waste,
and cut costs throughout a company.) The growth of international standards in some cases focused
greater attention on the importance of product quality. In Europe, for example, the European
Union requires that the quality of a firm’s manufacturing processes and products be certified under
a quality standard known as ISO 9000 before the firm is allowed access to the European
marketplace.
G) In addition to lowering costs and improving quality, international businesses have two further
objectives. First, the production and supply-chain functions must be able to accommodate
demands for local responsiveness. Second, production and supply-chain must be able to respond
quickly to shifts in customer demand.
Lecture Note: To extend the discussion on TQM and Six Sigma go to
{http://www.isixsigma.com/sixsigma/six_sigma.asp}.
Global Business Today Ninth Edition Chapter 15
Lecture Note: Each year CIO magazine {http://www.cio.com}publishes a list of the "Top 100"
companies in terms of Supply Chain/Logistics Management. This list may be helpful in locating
companies that are heavily involved in this issue.
WHERE TO PRODUCE
A) Companies contemplating international production need to consider three broadly defined
factors when making a location decision: country factors, technological factors, and product
factors.
Country Factors
B) As discussed earlier in the book, country factors suggest that a firm should locate it various
manufacturing activities in those locations where economic, political, and cultural conditions,
including relative factor costs, are most conducive to the performance of that activity. However,
regulations affecting FDI and trade can significantly affect the appropriateness of specific
countries, as can expectations about future exchange rate changes.
Teaching Tip: The United States Central Intelligence Agency has compiled an informative
“country profile” on each country in the world. The country profiles can be downloaded at
{https://www.cia.gov/library/publications/the-world-factbook/}. Students can use the reports as a
basis for comparing different production locations.
Teaching Tip: For additional information about a particular country, Yahoo provides an easy-to-
search bank of linked sources that provide information about almost every country in the world.
The site is available at {http://www.yahoo.com/Government/Countries/}. The site can be used to
make quick comparisons between countries to gauge their relative attractiveness as production
locations.
Management Focus: Philips in China
Summary
This feature describes Philips NV’s operations in China. Philips, the Dutch consumer electronics,
lighting, semiconductor, and medical equipment conglomerate, has been operating factories in
China since 1985. By the mid-2000s, the company had invested more than $2.5 billion in China
and operated 25 factories there. Today, the company operates 35 wholly owned subsidiaries and
joint ventures employing 30,000 people. Initially, Philips believed that it would sell a large portion
of its output to the local Chinese market. However, the company quickly discovered that the low
wages that make China such an attractive production location also meant that the market for its
products was smaller than anticipated. Philips’ solution was to export most of its output to the
United States and elsewhere. By 2011, demand in China had increased, and the country became
Philips’ second-largest market. Philips also moved the global headquarters if its domestic
appliance business from Amsterdam to Shanghai in 2011, a further illustration of just how
Global Business Today Ninth Edition Chapter 15
important China had become to the company. Discussion of the feature can revolve around the
following questions:
Suggested Discussion Questions
1. What makes China such an attractive production location for Philips? Are there other locations
that share the same characteristics?
Discussion Points: Several factors make China an attractive production location for Phillips.
2. Philips wants to eventually turn China into a global supply base from which its products will be
exported around the world. Consider the advantages and disadvantages of this strategy.
Teaching Tip: Students can explore the company in more depth by going to
{http://www.philips.com/global/index.page}.
Lecture Note: To extend the discussion of this feature, consider
{http://www.businessweek.com/news/2014-10-20/philips-profit-misses-analyst-estimates-on-
woes-in-china-russia}and {http://www.businessweek.com/ap/2012-09-11/philips-to-cut-2-200-
jobs-by-2014}.
Video Note: In recent years, many companies have turned to China as a location for low cost
production. However, in the light news of various tainted products produced being in China, some
managers are questioning that strategy. The videos in the International Business Library on
Pinterest (http://www.pinterest.com/mheibvideos/) Probe Sheds Light on Working Conditions in
China explores working conditions in China and the potential for production problems.
Technological Factors
Global Business Today Ninth Edition Chapter 15
C) The type of technology a firm uses in its manufacturing can be pivotal in location decisions.
Three characteristics of a manufacturing technology are of interest here: the level of fixed costs; its
minimum efficient scale; and its flexibility.
Fixed Costs
D) In some cases the fixed costs of setting up a manufacturing plant are so high that a firm must
serve the world market from a single location or from very few locations.
Minimum Efficient Scale
E) The larger the minimum efficient scale (the level of output at which most plant-level scale
economies are exhausted) of a plant, the greater the argument for centralizing production in a
single location or a limited number of locations.
Flexible Manufacturing and Mass Customization
F) The term flexible manufacturing technology or lean production as it is often called – covers
a range of manufacturing technologies that are designed to (i) reduce set up times for complex
equipment (ii) increase the utilization of individual machines through better scheduling, and (iii)
improve quality control at all stages of the manufacturing process.
G) Flexible manufacturing technologies allow a company to produce a wider variety of end
products at a unit cost that at one time could only be achieved through the mass production of a
standardized output. The term mass customization has been coined to describe this ability. Mass
customization implies that a firm may be able to customize its product range to suit the needs of
different customer groups without bearing a cost penalty.
H) Flexible machine cells are another common flexible manufacturing technology. A flexible
machine cell is a grouping of various types of machinery, a common materials handler, and a
centralized cell controller (computer).
I) The adoption of flexible manufacturing technologies can help improve the competitive position
of firms. Most importantly, from the perspective of an international business, flexible
manufacturing technologies can assist in the process of customizing products to different national
markets in accordance with demands for local responsiveness.
Production Factors
J) Several production factors feature prominently into the reasons why production facilities are
located and used in a certain way worldwide. They include (1) product features, (2) locating
production facilities, and (3) strategic roles for production facilities.
Product Features
Global Business Today Ninth Edition Chapter 15
K) Two product factors impact location decisions. The first is the product's value-to-weight ratio
because of its influence on transportation costs. If the value-to-weight ratio is high, it is practical
to produce the product in a single location and export it to other parts of the world. If the value-to-
weight ratio is low, there is greater pressure to manufacture the product in multiple locations
across the world.
L) The other product feature that can influence location decisions is whether the product serves
universal needs - needs that are the same all over the world. Since there are few national
differences in consumer taste and preference for such products, the need for local responsiveness is
reduced. This increases the attractiveness of concentrating manufacturing in a central location.
Locating Production Facilities
M) There are two basic strategies for locating manufacturing facilities: concentrating them in the
optimal location and serving the world market from there, and decentralizing them in various
regional or national locations that are close to major markets. The appropriate strategic choice is
determined by the various country, technological, and product factors discussed in this section. A
summary of this material is provided in Table 15.1 in the text.
Video Note: The apparel maker Hanesbrands has recently shifted production to Southeast Asia to
take advantage of the cost savings in the new location. To learn more, consider the video in the
International Business Library on Pinterest (http://www.pinterest.com/mheibvideos/) Hanesbrands
Relocates Manufacturing to Asia.
Strategic Roles for Production Facilities
N) Since the early 1990s, multinationals have opted to set up production facilities outside their
home countries 10 times for every 1 time they have opted to create such facilities at home. In
doing so, they hope to capture the gains associated with a globally dispersed global production
system.
O) This trend is expected to continue, so managers need to consider the strategic role assigned to a
foreign factory. A major consideration is the importance of global learning, or the idea that
valuable knowledge does not reside just in a firm’s domestic operations, it may also be found in its
foreign subsidiaries. Foreign factories that upgrade their capabilities over time are creating
valuable knowledge that could benefit the whole organization.
P) Foreign factories can have one of a number of strategic roles or designations: offshore factory,
source factory, server factory, contributor factory, outpost factory, or lead factory.
Q) An offshore factory is a factory that is developed and set up mainly for producing component parts or
finished goods at a lower cost than producing them at home or in any other market. The primary purpose of
a source factory is to drive down costs in the global supply chain. A server factory is linked into
the global supply chain for a global firm to supply specific country or regional markets around the world. A
contributor factory also serves a specific country or world region, and it also has responsibilities
Global Business Today Ninth Edition Chapter 15
for product and process engineering and development. An outpost factory can be viewed as an
intelligence–gathering unit. It is often placed near a competitor’s headquarters or main operations,
near the most-demanding customers, or near key suppliers of unique and critically important parts.
A lead factory is intended to create new processes, products, and technologies that can be used
throughout the global firm in all parts of the world.
The Hidden Costs of Foreign Locations
R) Producing in low cost countries does not always make sense. Hidden costs of foreign locations
include high employee turnover, shoddy workmanship, poor product quality, and low productivity
among others.
Teaching Note: Some companies are moving production back to their home country because
foreign production no longer offered the advantages it once had. To learn more, go to
{http://www.businessweek.com/articles/2012-07-05/reshoring-of-jobs-looks-meager}.
Video Note: Companies are moving production back to their home country to capitalize on the
advantages in their domestic markets. To learn more, go to
{http://www.businessweek.com/videos/2012-05-25/u-dot-s-dot-manufacturing-having-comeback-
levkovich-says}.
Management Focus: GE Moves Manufacturing from China to the United States
Summary
This feature explores General Electric’s decision to move manufacturing from China to the United
States. After decades of shifting production to China to take advantage of lower wages, the
company has recently started to reverse its strategy. Wage rates in China have been rising and at
the same time, productivity levels in the United States have been rising. In addition, higher oil
prices are affecting transportation costs. General Electric has also found that there may be benefits
to having product design and manufacturing located near to each other. Discussion of the feature
can revolve around the following questions:
Suggested Discussion Questions
1. Reflect on the decision by General Electric to move production from China to the United States.
What does this decision tell you about the importance of wage rates in production location
decisions?
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290
2. What drawbacks do you see in General Electric’s decision to move its manufacturing back to
the United States?
MAKE-OR-BUY DECISIONS
A) International businesses face sourcing decisions, and decisions about whether they should make
or buy the component parts to go into their final product. Make-or-buy decisions are important
factors in many firms' manufacturing strategies and are often based on two critical factors: cost and
production capacity.
B) Elements that favor a make decision - beyond the core elements of cost and production capacity
– include quality control, proprietary technology, having control, excess capacity, limited
suppliers, assurance of continual supply, and industry drivers (see Figure 15.3).
C) Elements that favor a make decision - beyond the core elements of cost and production capacity
– include inventory planning, brand preference, multisource policies, small volumes, nonessential
items, lack of expertise, and supplier competencies (see Figure 15.4).
Lecture Note: To see how a firm might conduct a make-or-buy analysis, consider
{http://www.businessweek.com/articles/2012-05-14/make-vs-dot-buy-is-not-the-question-to-ask}.
GLOBAL SUPPLY-CHAIN FUNCTIONS
A) Logistics and purchasing are critical functions in ensuring that materials are ordered and
delivered and that an appropriate level of inventory is managed.
Global Logistics
B) The core activities performed in logistics are: global distribution center management; inventory
management; packaging and materials handling; transportation; and reverse logistics.
Global Business Today Ninth Edition Chapter 15
C) A global distribution center is a facility that positions and allows customization of products
for delivery to worldwide wholesalers or retailers or directly to consumers anywhere in the world.
These centers are the foundation of a global supply network because they allow either a single
location or satellite warehouses to store quantities and assortments of products and allow for value-
added customization.
D) Global inventory management is the decision-making process regarding the raw materials,
work-in-process, and finished goods inventory for an MNC. The decisions include how much
inventory to hold, in what form to hold it, and where to locate it in the supply chain.
E) Packaging refers to the container that holds the product itself. Primary packaging holds the
product itself. Secondary packaging is designed to contain several primary packages. Transit
packaging is used when primary and secondary packages are assembled for transportation.
Regardless of where the product is in the global supply chain, packaging is intended to perform,
protect, and inform.
F) Transportation refers to the movement of raw material, component parts, and finished goods
throughout the global supply chain. Transportation is the largest percentage of any logistics
budget, and an even greater percentage for global companies because of the distances involved.
The primary drivers of transportation rates and the resulting aggregate cost are distance, transport
mode (ocean is the least expensive and air is the most expensive), size of load, load characteristics,
and oil prices.
G) Reverse logistics is the process of moving inventory from the point of consumption to the point
of origin for the purpose of recapturing value or proper disposal. The ultimate goal is to optimize
the after-market activity or make it more efficient.
Global Purchasing
H) The core activities performed in purchasing include development of an appropriate strategy for
global purchasing and selecting the type of purchasing strategy best suited for the company. There
are five strategic levels of purchasing: Level I: domestic purchasing activities only; Level II:
international purchasing only as needed; Level III: international purchasing as part of firm’s
overall supply chain management strategy; Level IV: global purchasing activities that are
integrated across the firm’s locations worldwide; and Level V: global purchasing activities that
are integrated across worldwide locations and functional groups .
I) Roughly 35 percent of the purchasing in global companies today is internal and 65 percent
external. The next decision, in both internal and external purchasing, is to figure out “where to
purchase” domestically or globally (see Table 15.2).
MANAGING A GLOBAL SUPPLY CHAIN
Global Business Today Ninth Edition Chapter 15
A) Four important areas are of concern in managing a global supply chain including the role of
just-in-time inventory; the role of information technology; coordination; and interorganizational
relationships. Efficient logistics can have a major impact upon a firm's bottom line.
Role of Just-in-Time Inventory
B) The basic philosophy behind just-in-time (JIT) inventory systems is to economize on
inventory holding costs by having materials arrive at a manufacturing plant just in time to enter the
production process, and not before.
C) Just-in-time systems generate major cost savings from reduced warehousing and inventory
holding costs. In addition, JIT systems help the firm to spot defective parts and take them out of
the manufacturing process - thereby boosting product quality.
D) The drawback of a JIT system is that it leaves a firm with little inventory to respond to changes
in demand or disruptions among suppliers.
Role of Information Technology
E) Web-based information systems play a crucial role in materials management. Electronic data
interchange (EDI) facilitates the tracking of inputs, allows the firm to optimize its production
schedule, allows the firm and its suppliers to communicate in real time, and eliminates the flow of
paperwork between a firm and its suppliers.
Coordination in Global Supply Chains
F) Global supply chain coordination refers to shared decision-making opportunities and
operational collaboration of key global supply chain activities. Shared decision making creates a
more integrated, coherent, efficient, and effective global supply chain.
G) To achieve operational integration and collaboration within a global supply chain, six
operational objectives should be addressed: responsiveness, variance reduction, inventory
reduction, shipment consolidation, quality, and life-cycle support.
Interorganizational Relationships
H) Trust and commitment between interacting organizations is important to an efficient and
effective global supply chain. If we always had 100 percent trust within relationships and 100
percent commitment to them, most global supply chains would ultimately be efficient and
effective. By looking at the building blocks for global supply chains, we would also assume that
not all relationships are equally valuable and that they should not be treated as if they were (see
Figures 15.5 and 15.6).
Global Business Today Ninth Edition Chapter 15
Critical Thinking and Discussion Questions
1. An electronics firm is considering how best to supply the world market for microprocessors
used in consumer and industrial electronic products. A manufacturing plant costs approximately
$500 million to construct and requires a highly skilled work force. The total value of the world
market for this product over the next 10 years is estimated to be between $10 and $15 billion. The
tariffs prevailing in this industry are currently low. Should the firm adopt a concentrated or
decentralized manufacturing strategy? What kind of location(s) should the firm favor for its
plant(s)?
product.
2. A chemical firm is considering how best to supply the world market for sulfuric acid. A
manufacturing plant costs approximately $20 million to construct and requires a moderately skilled
work force. The total value of the world market for this product over the new 10 years is estimated
to be between $20 and $30 billion. The tariffs prevailing in this industry are moderate. Should the
firm favor concentrated manufacturing or decentralized manufacturing? What kind of location(s)
should the firm seek for its plant(s)?
3. A firm must decide whether to make a component part in-house or to contract it out to an
independent supplier. Manufacturing the part requires a non-recoverable investment in specialized
Global Business Today Ninth Edition Chapter 15
assets. The most efficient suppliers are located in countries with currencies that many foreign
exchange analysts expect to appreciate substantially over the next decade. What are the pros and
cons of (a) manufacturing the component in-house and (b) outsourcing manufacture to an
independent supplier? Which option would you recommend? Why?
4. Reread the Management Focus on Philips in China then answer the following questions:
a) What are the benefits to Philips of shifting so much of its global production to China?
b) What are the risks associated with a heavy concentration of manufacturing assets in China?
c) What strategies might Philips adopt to maximize the benefits and mitigate the risks associated
5. Explain how the global supply-chain functions of (a) logistics and (b) purchasing can be used to
strategically leverage the global supply chains for a manufacturing company producing mobile
phones.
6. What type of interorganizational relationship should a global company consider in the (a)
inbound portion of its supply chain if the goal is to buy commodity-oriented component parts for
its own production and (b) outbound portion of its supply chain if the goal is to establish a strong
partnership in reaching end-customers?
Closing Case: H&M: The Retail-Clothing Giant
Summary
The closing case explores the operations of H&M, the Swedish low cost fashion giant. H&M,
which was founded in 1947 as a women’s clothing store, is a multinational firm with 3,200 stores
located across 54 countries. H&M designs its products in-house, but relies on a network of 900
independent suppliers based mainly in Europe and Asia for the six brands of clothing it sells in its
stores. Discussion of the case can revolve around the following questions:
QUESTION 1: that the second largest clothing retailer is only selling in stores in 54 countries plus
an additional 10 countries online? Why do you think it is not covering more of the world’s
countries?
QUESTION 2: H&M does not own any of the factories that produce its clothes. Instead, it relies
on some 1,900 factories and 900 suppliers to create what its team designed. These factories and
suppliers are mostly in Europe and Asia. How can H&M ensure that its customers receive the
quality expected in the clothing?
Global Business Today Ninth Edition Chapter 15
QUESTION 3: H&M stresses sustainability in its promotional campaigns. How can it ensure that
the working conditions are appropriate for the 1.6 million people that will serve in its supplier
network? Is it even H&M’s role to ensure that the working conditions and environmental impact
are great in every market it engages in?
QUESTION 4: If you worked for H&M, what would you suggest that it focus on to become even
larger than it is now? Should it own its own factories? Should it expand to more than the 64
countries (54 with stores and 10 online) that it is in now? Should it control more of the global
chains?
ANSWER 4: Responses to this question will vary by student.
Teaching Tip: To learn more about H&M go to {http://about.hm.com/en/About.html}.
Lecture Note: To extend this case, consider {http://www.businessweek.com/articles/2014-03-
17/h-and-ms-new-store-blitz-moves-faster-its-than-digital-expansion} and
{http://www.bbc.com/news/business-19740407}.
Continuous Case Concept
Several of the world’s automakers are in the process of revamping how they build their cars.
Toyota for example, is building a global supply chain in Thailand. The goal is to develop a global
operating platform allowing the company to build cars and supply components entirely from
outside Japan. Similarly, South Korea’s Hyundai is hoping to improve its cost structure by
acquiring steel and parts suppliers. All of the Japanese and Korean companies are shifting
production offshore to minimize their exposure to exchange rate fluctuations. Toyota for example,
recently signed an agreement with Mazda for the production of cars destined for the U.S. market.
Production will take place in Mazda’s factories in Mexico. French automaker Renault bought
Romania’s Dacia plant in 1999. Today, with the plant running a nearly full capacity, the
overhauled facilities produces Europe’s cheapest car. Ford is following a new strategy in which the
company has only a few models that it sells across multiple markets. The company is hoping that
its new One Ford approach will generate significant scale economies and other cost savings. One
Global Business Today Ninth Edition Chapter 15
model developed under this strategy, the Fiesta, was designed in Europe, is already on sale in
China, and will be introduced in the United States in 2010. With its new strategy, Ford is hoping
to cut design and production costs, and also the time it takes to get a car to market.
• Ask students to consider Hyundai’s strategy. What advantages does it gain by acquiring
steel and part suppliers? What are the risks involved in this strategy? How will this allow
Hyundai to better manage its supply chain?
• Next, consider the move by the Asian automakers to shift production offshore. Does this
strategy make sense? What are the long term implications of this strategy? Discuss the
benefits of Toyota’s move to build a global platform to build cars using components from
outside Japan. What new issues does this strategy create for the company?
• Then, reflect on the strategy by Renault acquire Dacia and to overhaul a very outdated
plant in Romania. Demand for the Dacia is very strong – it is the fastest growing brand in
Europe – but now Renault is considering moving production to Morocco. What are the
benefits of this strategy?
• Finally, discuss the decision by the Japanese and Koreans to ramp up production in Eastern
Europe. What are the advantages of Eastern European production as compared to
production in Western Europe? Are there any disadvantages? Consider Ford’s world car
approach. What are the advantages of this strategy? Are there any drawbacks?
This exercise works well as an introduction to the material in this chapter, or as an introduction to
individual segments within the chapter. For example, the first question ties in well with the
discussion of the make-or-buy decision, and the last question works well with the material on
where to locate foreign production.
globalEDGE Exercises
The resources for each exercise can be easily located by using the search box at the top of the
globalEDGE website at http://globalEDGE.msu.edu
Exercise 1
Search phrase: Chartbook of International Labor Comparisons
Resource Name: A Chartbook of International Labor Comparisons: United States, Europe and
Asia
Website: http://www.bls.gov/fls/chartbook.htm
globalEDGE Category: Statistical Data Sources
Additional Info:
Global Business Today Ninth Edition Chapter 15
The chartbook is published annually by the U.S. Department of Labor and is useful for exploring
how key labor market and other national economic measurements compare across countries.The
report is accessible both as webpages and as a PDF file.
Exercise 2
Search phrase: Logistics Performance Index
Resource Name: Logistics Performance Index (LPI)
Website: http://go.worldbank.org/7TEVSUEAR0
globalEDGE Category: Rankings
Additional Info:
Based on a worldwide survey of operators on the ground -- such as global freight forwarders and
express carriers -- the Logistics Performance Index (LPI) measures the logistics "friendliness" of
155 countries. It helps countries identify the challenges and opportunities they face in their trade
logistics performance and what they can do to improve. It is published every 2-3 years.
Additional Readings and Sources of Information
Strong Dollar Knocks H&M Profit
http://news.bbc.co.uk/2/hi/business/7965227.stm
H&M and Zara to Sign Bangladesh Safety Accord
http://www.bbc.com/news/business-22520415
An iPhone Tester Caught in Apple’s Supply Chain
http://www.businessweek.com/articles/2013-11-07/an-iphone-tester-caught-in-apples-supply-chain
Zara’s Fast Fashion Edge
http://www.businessweek.com/articles/2013-11-14/2014-outlook-zaras-fashion-supply-chain-edge
The Human Cost of Cheap Clothing
http://www.bbc.co.uk/news/business-10535743
Better Collaboration Lets Businesses Take Back the Supply Chain
http://www.bbc.com/news/business-18411035
Supply Chain Management: The Next Big Thing?
http://www.businessweek.com/business-schools/supply-chain-management-the-next-big-thing-
09122011.html
Make vs. Buy Is Not the Question to Ask
http://www.businessweek.com/articles/2012-05-14/make-vs-dot-buy-is-not-the-question-to-ask
Global Business Today Ninth Edition Chapter 15
No Company Follows Apple’s Extended China Factory Audits
http://www.businessweek.com/technology/no-company-follows-apples-expanded-china-factory-
audits-02272012.html
Insourcing and Outsourcing: the Right Mix
http://www.businessweek.com/managing/content/feb2010/ca2010024_507452.htm
Jobs, Jobs, Jobs
http://www.businessweek.com/articles/2012-03-19/jobs-jobs-jobs
From Tesla to Dunkin’ Donuts One Firm’s Quest to Fine Tune the World
http://www.businessweek.com/articles/2014-02-28/from-tesla-to-dunkin-donuts-one-firms-quest-
to-fine-tune-the-world
Tim Cook Interview: The iPhone 6, the Apple Watch, and Remaking a Company’s Culture
http://www.businessweek.com/articles/2014-09-17/tim-cook-interview-the-iphone-6-the-apple-
watch-and-being-nice
