Introduction to
International Business
Discussion Section
April 6, 2007
Sanny Liao
Review of Chapter 16


What do the TQM, Six Sigma method and the ISO 9000 try to
achieve?
 Quality control
What factors should firms consider when deciding production
locations?
 Country factors (economic, political and cultural conditions,
industry concentration, exchange rate, etc.)
 Technological factors (fixed cost, minimum efficient scale,
flexible manufacturing technology and mass customization)
 Product factors (value to weight ratio, universality)
Review of Chapter 16 – Cont’d



What are the advantages of “make”:
 Lower costs, facilitate specialized investments,
protect proprietary technology, better coordination
“Buy”:
 Input location flexibility, lower cost in some cases,
benefit from trade agreements (e.g. offsets)
Between: strategic alliances with suppliers
Review of Chapter 16 – Cont’d

How to manage the global supply chain most
efficiently and competitively?
 Just-in-time inventory (JIT)
 Internet and EDI systems
Case: Competitive Advantage at Dell
Inc.
1.
What are the advantages to Dell of having
manufacturing sites located where they are? What are
the potential disadvantages?
 Dell’s manufacturing sites are in Brazil, China,
Malaysia, Ireland, and the U.S. Advantages of
these locations are that some of them are low cost
(Brazil, China, Malaysia and, relatively, Ireland),
they have educated work forces that are highly
productive, and they are near large regional
markets. Potential disadvantages: quality control,
sensitivity to international shocks.
Case: Dell, cont’d
2. Why does Dell purchase most of the components that go
into its PC from independent suppliers, as opposed to
making more itself?
Dell outsources because it enables Dell’s business model to be
successful. Dell’s comparative advantage is in pricing,
customization and rapid order fulfillment, all advantages gained
through supply chain management and logistics. By
outsourcing, Dell does not carry risks connected to inventory
such as obsolescence, Dell can maintain flexibility in its
manufacturing, and Dell has lower coordination costs than if it
were vertically integrated, producing its own parts. Outsourcing
allows Dell to focus on what it does best.
Case: Dell, cont’d
3. What are the consequences for Dell’s cost structure and
profitability of replacing inventories with information?
Since component cost account for 75% of revenues and
the value of hardware depreciates extremely fast, by
replacing inventory with information, Dell reduces its
exposure to product depreciation. Dell further
reduces its costs (hence profitability) by providing
their key suppliers with a similar information system.
Case: Dell, cont’d
7. What are the potential risks associated with
Dell’s global supply chain strategy? How can
these risks be mitigated?
 Transportation disruption, supplier problems,
vulnerability to IT issues
 Supplier problems are the most dangerous
because they are not shared by competitors.
They can be mitigated through vertical
integration.
Global Production: Group Discussion

You are Apple, Maytag, Toyota, and Sony. How will you
coordinate your production activities for the iPhone, the Maytag
Neptune Washer, the Prius, and the Sony Playstation Portable?

Where should production be located and should they be
concentrated or dispersed?

What should be the long-term strategic role of foreign
production sites? Should the firm abandon a foreign site if
factor costs change, or is there value to maintaining an
operation at a given location even if economic conditions
change?

Should the firm own foreign production or should production be
outsourced?

How should a globally-dispersed supply chain be managed?

Should the firm manage the logistics or outsource their
management?