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DESIGNED BY:-

SURESH RAGHAV
PANKAJ KUMAR

Designed by:-Suresh Raghav and Pankaj Kumar


Foreign manufacturing decisions

When an international company possesses a


particular technology and decides to begin
manufacturing, it needs to adopt a sound operations
strategy so as to enjoy competitive advantage.

Manufacturing involves transformation or conversion


of raw materials and inputs into outputs of goods and
services. It is therefore, associated with activities or
decisions related with manufacturing.
Designed by:-Suresh Raghav and Pankaj Kumar
The operations strategy in a manufacturing company
involves many decisions. The more important among
them
are:-

1. Location of manufacturing.
2. Sourcing of inputs.
3. Make or buy decisions.
4. Inventory management.
Designed by:-Suresh Raghav and Pankaj Kumar
Location of manufacturing.
The classical theory of location suggest that if

• The raw- material input account for large share in the


value of final product, the manufacturing unit should
be located near the source of inputs or raw materials.

• The raw- material or inputs does not matter very


much, from the viewpoint of cost or transportation,
the manufacturing unit should be located near the
market.
Designed by:-Suresh Raghav and Pankaj Kumar
Factor affecting location decisions

The factors affecting location decisions can be


studied under the following heads:-

1. Country factors.
2. Product factors.
3. Government policies.
4. Organizational factors.

Designed by:-Suresh Raghav and Pankaj Kumar


Factor affecting location decisions
 Country factors- various factors relating to the
country affects the location decision . These includes
availability of raw material and other inputs, cost of
these resources , infrastructure etc.

 Product – factors – the important product related


issues are:
 Product –value-to weight ratio
 The required production technology
 Importance of customer feedback

Designed by:-Suresh Raghav and Pankaj Kumar


Factor affecting location decisions
 Government policies- government policies toward
foreign companies likes allocation of land , tax
concessions, incentives, foreign trade zones, and
stability of these policies influence the location decision.

 Organization issues- the organization factors may


also affects the location decision. The firm with low cost
leadership strategy select the location where the cost of
production can be lowest.

Designed by:-Suresh Raghav and Pankaj Kumar


Sourcing decisions
International sourcing is an important element of global
operations management. There are number of reasons
which explain the importance of global sourcing. The most
important reason is cost.

To illustrate, if General motors wants to be price


competitive in European Union market, one decision is to
manufacture and deliver cars from United State to
European Union at a price equal to or less than the price
that is charged by EU competitors. Since this is not
feasible, GM uses overseas suppliers of components and
assemble parts to make cars which it can sell in Europe.

Designed by:-Suresh Raghav and Pankaj Kumar


Modes of International Sourcing

There are four modes of International sourcing:-

1.Import – Direct or through agents or distributors

2.Establishment of international procurement offices (IPOs).

3.Sourcing through direct investment.

4.Strategic alliances.

Designed by:-Suresh Raghav and Pankaj Kumar


Make and Buy decisions

An important sourcing decision for MNEs is whether to


make or buy inputs or components for manufacturing. The
issue here is - should a company make its own
components/parts or, should it outsource them, or buy
them from suppliers? The choice between “make” and “buy”
is not an easy one.
For example, in automobile industry a car contains about
10000 components, and the automobile manufacturers
constantly face “make” or “buy” decisions.
Ford of Europe for example, produces only about 45% of
total components of fiesta in its own plants. The remaining
55% is sourced from suppliers.
Both “make” and “buy” have their own advantages (and
implied disadvantages)

Designed by:-Suresh Raghav and Pankaj Kumar


Advantages of “make” decision

1. Full control over quality and cost.


2. Availability of input at lower cost.
3. Efficiently scheduling and timely supply.
4. Maintenance of secrecy of technology.
5. Modification in product design easy to make.
6. Generation of profit through convenient
pricing of inputs.

Designed by:-Suresh Raghav and Pankaj Kumar


Advantages of “buy” decision

1. No additional investment for input


manufacturing.
2. Flexibility to procure inputs from the cheapest
and choicest source.
3. No new technology to be acquired for input
manufacturing.
4. Buying flexibility in situation of changing
demand.
5. Strategic alliance may be good alternative.

Designed by:-Suresh Raghav and Pankaj Kumar


INVENTORY MANGEMENT
Inventory accounts for the largest proportion of
current assets. Therefore, management of inventory
has become a very important aspect of international
manufacturing decision. Inventory mgt of a
multinational company is more complex because of
international sourcing of raw material or inputs, long
or transit time, exchange rate fluctuations, political risk
etc.

Designed by:-Suresh Raghav and Pankaj Kumar


THANKS FOR YOUR
ATTENTION

ANY QUESTIONS
?

Designed by:-Suresh Raghav and Pankaj Kumar

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