Operations Strategy in
a Global Environment
Chapter 2
When we complete this chapter
you should know:
What is Mission and Strategy
 Explain ten decisions of OM
 Describe and explain Differentiation, Low
Cost, Response
 Four Global operations Strategies
 Why Global issues are important

Global Strategies
Boeing – sales and production are worldwide
 Benetton – moves inventory to stores around the
world faster than its competition by building
flexibility into design, production, and distribution
 Sony – purchases components from suppliers in
Thailand, Malaysia, and around the world

Volvo – considered a Swedish company but it is
controlled by an American company, Ford. The
current Volvo S40 is built in Belgium and shares
its platform with the Mazda 3 built in Japan and
the Ford Focus built in Europe.
 Haier – A Chinese company, produces compact
refrigerators (it has one-third of the US market)
and wine cabinets (it has half of the US market)
in South Carolina

Boeing Suppliers (787)
Firm
Dassault
Country
France
Messier-Bugatti
Thales
France
France
Diehl
FR-HiTemp
Germany
UK
Smiths Aerospace
UK
Component
Design and
PLM software
Landing gear
Electrical power
conversion system
and integrated
standby flight display
Interior lighting
Fuel pumps
and valves
Central computer
system
Firm
BAE SYSTEMS
Alenia Aeronautics
Country
UK
Italy
Toray Industries
Japan
Fuji Heavy
Industries
Kawasaki Heavy
Industries
Japan
Japan
Component
Electronics
Upper center
fuselage &
horizontal stabilizer
Carbon fiber for
wing and tail units
Center wing box
Forward fuselage,
fixed section of wing,
landing gear well
Firm
Teijin Seiki
Mitsubishi Heavy
Industries
Chengdu Aircraft
Group
Hafei Aviation
Country
Japan
Japan
Component
Hydraulic actuators
Wing box
China
Rudder
China
Parts
What is the Reasons to Globalize?
Reasons to Globalize
Reasons to Globalize
Tangible
Reasons
Intangible
Reasons






Reduce costs (labor, taxes, tariffs, etc.)
Improve supply chain
Provide better goods and services
Understand markets
Learn to improve operations
Attract and retain global talent
How Globalization helps to Reduce
costs?
Reduce Costs
 Foreign
locations with lower wage rates
can lower direct and indirect costs
 Maquiladoras
 World
Trade Organization (WTC)
 North American Free Trade Agreement
(NAFTA)
 APEC, SEATO, MERCOSUR
 European Union (EU)
How Globalization Improves the
Supply Chain?
What is a supply chain?

A supply chain is a network of facilities and
distribution options that performs the
functions of procurement of materials;
transformation of these material into
intermediate and finished products; and
distribution of these finished products to
customers.
How Globalization Improves the
Supply Chain?
Improve the Supply Chain

Locating facilities closer to unique
resources

Auto design to California
 Athletic shoe production to China
 Perfume manufacturing in France
Globalization can provide Better Goods
and Services
 Improved understanding as the result
of a local presence permits firm to
customize products and services to
meet unique cultural needs in foreign
markets.

Objective and subjective characteristics
of goods and services
 On-time
deliveries
 Cultural variables

Reduce response time.
Understand Markets

Interacting with foreign customer
and suppliers can lead to new
opportunities

Cell phone design from Europe
 Cell phone fads from Japan
 Extend the product life cycle
Learn to Improve Operations

Remain open to the free flow of
ideas

General Motors partnered with a
Japanese auto manufacturer to learn
 Scandinavian design ideas have been
used to improve equipment design
and layout
Attract and Retain Global Talent

Offer better employment
opportunities

Better growth opportunities and
insulation against unemployment
 Relocate unneeded personnel to more
prosperous locations
 Incentives for people who like to travel
Cultural and Ethical Issues


Cultures can be quite different
Attitudes can be quite different
towards
 Punctuality
 Thievery
 Lunch breaks
 Bribery
 Environment
 Child labor
 Intellectual
property
Match Product & Parent








Braun Household
Appliances
Firestone Tires
Godiva Chocolate
Haagen-Dazs Ice
Cream
Jaguar Autos
MGM Movies
Lamborghini Autos
Alpo Petfoods
1.
2.
3.
4.
5.
6.
7.
8.
Volkswagen
Bridgestone
Campbell Soup
Ford Motor Company
Gillette
Nestlé
Pillsbury
Sony
Match Product & Parent








Braun Household
Appliances
Firestone Tires
Godiva Chocolate
Haagen-Dazs Ice
Cream
Jaguar Autos
MGM Movies
Lamborghini Autos
Alpo Petfoods
1.
2.
3.
4.
5.
6.
7.
8.
Volkswagen
Bridgestone
Campbell Soup
Ford Motor Company
Gillette
Nestlé
Pillsbury
Sony
Match Product & Country








Braun Household
Appliances
Firestone Tires
Godiva Chocolate
Haagen-Dazs Ice
Cream
Jaguar Autos
MGM Movies
Lamborghini Autos
Alpo Petfoods
1.
2.
3.
4.
5.
Great Britain
Germany
Japan
United States
Switzerland
Match Product & Country








Braun Household
Appliances
Firestone Tires
Godiva Chocolate
Haagen-Dazs Ice
Cream
Jaguar Autos
MGM Movies
Lamborghini Autos
Alpo Petfoods
1.
2.
3.
4.
5.
Great Britain
Germany
Japan
United States
Switzerland
Developing Missions and Strategies
Mission statements tell an organization
where it is going!?
The Strategy tells the organization how to
get there!?
Factors Affecting Mission
Philosophy
and Values
Profitability
and Growth
Environment
Mission
Customers
Public Image
Benefit to
Society
Strategy



Action plan to achieve
mission
Functional areas have
strategies
Strategies exploit
opportunities and
strengths, neutralize
threats, and avoid
weaknesses
How firms achieve competitive
advantage through operations?

1.
2.
3.

Firms achieve missions in three conceptual
ways:
Differentiation
Cost leadership
Response
This means operations managers are called to
deliver goods and services that are 1- better or
at least different 2- cheaper 3- more
responsive
Competing on Differentiation
Uniqueness can go beyond both the
physical characteristics and service
attributes to encompass everything that
impacts customer’s perception of value
 Safeskin gloves – leading edge products
 Walt Disney Magic Kingdom –
experience differentiation
 Hard Rock Cafe – theme experience
Competing on Cost
Provide the maximum value as
perceived by customer. Does not imply
low quality.
 Southwest Airlines – secondary
airports, no frills service, efficient
utilization of equipment, no downtown
offices, matching capacity with demand
 Wal-Mart – small overheads, shrinkage,
distribution costs, direct shipment,
rapid transportation
Competing on Response

Flexibility is matching market changes in
design innovation and volumes


Reliability is meeting schedules


Institutionalization at Hewlett-Packard
German machine industry
Timeliness is quickness in design,
production, and delivery

Johnson Electric, Bennigan’s, Motorola
Strategic Process
Organization’s
Mission
Functional
Area Missions
Marketing
Operations
Finance/
Accounting
OM’s Contribution to Strategy
Operations
Decisions
Product
Quality
Process
Examples
Specific
Strategy Used
Competitive
Advantage
FLEXIBILITY
Sony’s constant innovation
of new products………………………………....Design
HP’s ability to follow
the printer market………………………………Volume
Southwest Airlines No-frills service……..…..LOW COST
Location
Layout
Human
resource
Supply-chain
Inventory
Scheduling
Maintenance
DELIVERY
Pizza Hut’s five-minute
guarantee at lunchtime…………………..…..……..Speed
Federal Express’s “absolutely,
positively on time”………………………..….Dependability
Differentiation
(Better)
Response
(Faster)
QUALITY
Motorola’s automotive products
ignition systems…………………………......Conformance
Motorola’s pagers………………………..….Performance
IBM’s after-sale service
on mainframe computers……....AFTER-SALE SERVICE
Fidelity Security’s broad
line of mutual funds………….BROAD PRODUCT LINE
Cost
leadership
(Cheaper)
Figure 2.4
Differentiation, low cost, and response can be
achieved when managers make effective
decisions in 10 areas of OM (operations
decisions):
1.
2.
3.
4.
5.
Goods and service
design
Quality
Process and
capacity design
Location selection
Layout design
6.
7.
8.
9.
10.
Human resource
and job design
Supply-chain
management
Inventory
Scheduling
Maintenance
Operations Strategies for Two Drug
Companies
Competitive
Advantage
Brand Name Drugs, Inc.
Generic Drug Corp.
Product Differentiation
Low Cost
Process
Product and modular
process; long production
runs in specialized
facilities; build capacity
ahead of demand
Process focused; general
processes; job shop
approach, short
production runs; focus on
high utilization
Location
Still located in the city
where it was founded
Recently moved to lowtax, low-labor-cost
environment
Table 2.2
Operations Strategies for Two Drug
Companies
Competitive
Advantage
Brand Name Drugs, Inc.
Generic Drug Corp.
Product Differentiation
Low Cost
Scheduling
Centralized production
planning
Many short-run products
complicate scheduling
Layout
Layout supports
automated productfocused production
Layout supports processfocused job shop
practices
Table 2.2
Operations Strategies for Two Drug
Companies
Competitive
Advantage
Brand Name Drugs, Inc.
Generic Drug Corp.
Product Differentiation
Low Cost
Human
Resources
Hire the best; nationwide
researches
Very experienced top
executives; other
personnel paid below
industry average
Supply Chain
Long-term supplier
relationships
Tends to purchase
competitively to find
bargains
Table 2.2
Operations Strategies for Two Drug
Companies
Competitive
Advantage
Brand Name Drugs, Inc.
Generic Drug Corp.
Product Differentiation
Low Cost
Inventory
High finished goods
inventory to ensure all
demands are met
Process focus drives up
work-in-process
inventory; finished goods
inventory tends to be low
Maintenance
Highly trained staff;
extensive parts inventory
Highly trained staff to
meet changing demand
Table 2.2
Strategic Options to Gain a
Competitive Advantage
28% - Operations Management
18% - Marketing/distribution
17% - Momentum/name recognition
16% - Quality/service
14% - Good management
4% - Financial resources
3% - Other
Strategy Development and
Implementation



Identify critical success factors
Build and staff the organization
Integrate OM with other activities
The operations manager’s job is to implement
an OM strategy, provide competitive
advantage, and increase productivity
Global operations strategy options
As we suggested early many operations
strategies now require an international
dimension.
 Operations managers of international and
multinational firms approach global
opportunities with one of four operations
strategies.

Four International Operations Strategies
International
Strategy
Cost Reduction Considerations
High
 Import/export or
license existing
product
Examples
U.S. Steel
Harley Davidson
Low
Low
High
Local Responsiveness Considerations
(Quick Response and/or Differentiation)
Four International Operations
Strategies Global
Strategy
High
Cost Reduction Considerations
 Standardized
product
 Economies of scale
 Cross-cultural
learning
Examples
 Import/export or
license existing
Texas Instruments
product
Examples Caterpillar
U.S. Steel
Otis Elevator
Harley Davidson
International Strategy
Low
Low
High
Local Responsiveness Considerations
(Quick Response and/or Differentiation)
Four International Operations Strategies
Multidomestic
Strategy
High
 Use existing
 Standardizeddomestic
product
model
 Economies of scale
 Cross-cultural
learning
globally
Examples
Franchise, joint
Texas 
Instruments
Caterpillar
Otis Elevatorventures,
subsidiaries
Cost Reduction Considerations
Global Strategy
International Strategy
Examples
Heinz
Examples McDonald’s
U.S. Steel
Harley Davidson
The Body Shop
Hard Rock Cafe
 Import/export or
license existing
product
Low
Low
High
Local Responsiveness Considerations
(Quick Response and/or Differentiation)
Four International Operations Strategies
Transnational
Strategy
High
 Move material,
people, ideas
Examples
across national
Texas Instruments
Caterpillar boundaries
Otis Elevator
 Economies of scale
 Cross-cultural
International Strategy
Multidomestic Strategy
 Use existing
learning
 Import/export
or
domestic model globally
Global Strategy
Cost Reduction Considerations
 Standardized product
 Economies of scale
 Cross-cultural learning
license existing
product
Examples
Coca-Cola
Nestlé
Examples
U.S. Steel
Harley Davidson
Low
 Franchise, joint ventures,
subsidiaries
Examples
Heinz
The Body Shop
McDonald’s Hard Rock Cafe
Low
High
Local Responsiveness Considerations
(Quick Response and/or Differentiation)
Four International Operations
Strategies
Cost Reduction Considerations
High
Global Strategy
Transnational Strategy
 Standardized product
 Economies of scale
 Cross-cultural learning
 Move material, people, ideas
across national boundaries
 Economies of scale
 Cross-cultural learning
Examples
Texas Instruments
Caterpillar
Otis Elevator
Examples
Coca-Cola
Nestlé
International Strategy
 Import/export or
license existing
product
Multidomestic Strategy
 Use existing
domestic model globally
 Franchise, joint ventures,
subsidiaries
Examples
U.S. Steel
Harley Davidson
Examples
Heinz
The Body Shop
McDonald’s Hard Rock Cafe
Low
Low
High
Local Responsiveness Considerations
(Quick Response and/or Differentiation)
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and announcements!
Have nice day!