International Issues

1
International Issues

• Jerry Banks

2
Wal-Mart in Brazil (WSJ, 10/8/97)

• Tanks of live trout are out
• Sushi is in
• American footballs are out
• Soccer balls are in
• Find fixings for fejoada at the deli counter
• Bye-bye American jeans
• Knockoffs instead

3
Wal-Mart in Brazil

• Foreign markets
• Full of promise
• Full of pitfalls
• Why go foreign
• US is just about tapped out
• Big competition
• Carrefour
• Matches prices within a few minutes

4
Wal-Mart in Brazil

• Distribution problems
• 58,000 items vs Carrefours 22,000
• Carrying such a wide variety hurts
• The US distribution network runs like a
  well-oiled machine
• Not so in Sao Paulo
• Bumper-to-bumper traffic
• 300 deliveries/day vs 7/day in the US
• Disappearing inventories
• Somewhere between the port and the store

5
Wal-Mart in Brazil

• Distribution problems
• Local suppliers are having difficulty meeting
  Wal-Marts specifications
• Easy-to-handle packaging
• Quality control

6
Wal-Mart in Brazil

• Big mistakes
• Leaf blowers arent used in Sao Paulo
• Its a concrete jungle
• Fork lift trucks didnt work with Brazilian
  pallets
• Bookkeeping system cant handle Brazils
  complicated tax system
• Brazilian shoppers give post-dated checks

7
Wal-Mart in Brazil

• Big mistakes
• Shoppers arent used to paying a membership fee
• Bulk purchases cant be stored in tiny apartments
• Small businesses are reluctant to join
• Fear their purchases will be reported to the tax
  authorities

8
GMs hard road Too Japanese for Japan (WSJ,
9/16/02)

• American cars are too big for Japanese streets
• The Chevrolet Cruze is compact
• American cars break down too much
• Cruze was built by GM affiliate Suzuki in Japan

9
GMs hard road Too Japanese for Japan (WSJ,
9/16/02)

• Cant find parts for an American car or a
  mechanic to fix it
• Suzuki dealers are readily available

10
GMs hard road Too Japanese for Japan (WSJ,
9/16/02)

• Butthe Cruze looks like a flop
• Early sales results are certailnly below our
  expectations

11
GMs hard road Too Japanese for Japan (WSJ,
9/16/02)

• Whats the problem?
• The car is overpriced
• GM is skimping on advertising

12
GMs hard road Too Japanese for Japan (WSJ,
9/16/02)

• Even more fundamental
• The car is too Japanese!!!
• Its tricky to adapt US products to foreign
  markets
• Companies have to tweak their products so that
  they will be accepted by foreign consumers
• But, if they change the products too much, they
  risk losing the products American appeal

13
GMs hard road Too Japanese for Japan (WSJ,
9/16/02)

• Another major problem, the Cruze and the Suzuki
  Swift are nearly identical
• Cruze starts at 1.2 million yen
• Suzuki Swift starts at 790,000 yen
• Its a lot easier to sell the Suzuki

14
Krispy Kreme to go upscale, AJC, 9/26/03
15
Krispy Kreme to go upscale, AJC, 9/26/03

• London store will open October 3 in posh Harrods
• Plan is to open 24 additional outlets in Britain
  and Ireland over the next five years

16
Krispy Kreme to go upscale, AJC, 9/26/03

• Will Krispy Kreme be a hit among a population
  that eats kippered herring for breakfast?
• Can anyone persuade the British to eat a sugary
  ring of fried dough instead of midmorning
  biscuits (cookies)?

17
Krispy Kreme to go upscale, AJC, 9/26/03

• Several US companies have failed to take off
• Taco Bell
• Arbys
• Dunkin Donuts

18
Krispy Kreme to go upscale, AJC, 9/26/03

• Britishers shied away from Taco Bell because they
  were afraid of mispronouncing product names
• fah-GEE-tah instead of fah-HEE-tah
• tack-o instead of tah-co

19
Krispy Kreme to go upscale, AJC, 9/26/03

• Britishers generally dont like sticky-sweet
  stuff for breakfast
• For breakfast they like bacon and eggs, bacon
  sandwiches, or sausage rolls
• People dont drive to work, so the drive-thru
  concept used so often to sell Krispy Kreme
  donusts wont work

20
Krispy Kreme to go upscale, AJC, 9/26/03

• Krispy Kremes response
• There will be a street access for people that
  walk by
• Brits will buy boxes to share at the office for a
  midmorning snack, instead of a biscuit

21
Exercise

• Give examples of mistakes made by global firms
  that have come to your country

22
Small world

• One-toy-fits-all How industry learned to love
  the global kid, WSJ, 4/29/03
• Goodbye, Japanese Barbie
• Blondes have more sales
• Influence of TV and Wal-Mart

23
Small world

• For many years, Barbie dolls sold in Japan looked
  different than their US counterparts
• Asian facial features
• Black hair
• Japanese inspired clothes

24
Small world

• About year 2000, Mattel learned something
  surprising
• Yellow haired Barbie was just as popular in Hong
  Kong as in Hollywood
• Hair color was a fantasy
• Toy makers are increasingly marketing one version
  worldwide

25
Small world

• Mattels Rapunzel Barbie with ankle length blonde
  hair and a pink ball gown was released on the
  same day in 59 countries including the USA
• US200 million in sales in the first six months
  of release
• 50 of that outside the USA

26
Small world

• Recent developments are changing childrens
  tastes
• Rapid worldwide expansion of cable and satellite
  TV channels
• Movies
• Internet
• Widening international reach of giants like
  Wal-Mart and Carrefour

27
Small world

• Not all toys cross international boundaries
• German children dont play with action figures,
  but US and UK kids like them very much
• American kids want NASCAR toys while European
  kids want Formula One models

28
Small world

• Mattel now thinks globally when new toys are
  conceived
• Develop products with an international appeal

29
Types of Systems

• International distribution systems
• Manufacturing occurs domestically
• Distribution and marketing take place
  internationally

30
Types of Systems

• International suppliers
• Raw materials and components are furnished by
  foreign suppliers
• Final assembly is performed domestically

31
Types of Systems

• Offshore manufacturing
• Product is manufactured in a single foreign
  location
• Then shipped to domestic warehouses for sale and
  distribution

32
Types of Systems

• Fully integrated global supply chain
• Products are manufactured and distributed from
  various facilities located throughout the world
• Appears that the supply chain was designed
  without regard to borders
• But, value can be added by taking advantage of
  globalization

33
Forces of globalization

• Global market forces
• Technological forces
• Global cost forces
• Political and economic forces

34
Global market forces

• Increasing demand for products throughout the
  world
• European television introduces products from the
  US
• Japanese and Germans vacation abroad
• Foreigners comprise 40 of visitors to the Grand
  Canyon
• (BW, 7/15/02)
• Internet provides instant exposure and the
  ability to purchase goods from throughout the
  world

35
Global market forces

• To defend domestic markets, companies may have to
  move, or threaten to move, into foreign markets
• Kellogg threatens to move into Europe with their
  breakfast cereals
• Nestle threatens to retaliate
• The result is the status quo

36
Global market forces

• China
• Considerable business risks are being taken by
  firms to enter China
• Shen Zhen
• 20,000 in 1979
• 7 million in 2002

37
Global market forces

• On the other hand!
• GM sales in China soared in the first half
• WSJ, July 19, 2002
• Near tripling of units sold is a measure of
  redemption for controversial investment
• The swelling demand may be the start of a period
  of prolonged growth

38
Labor costs for assembling PCBs

• 7 to 8 in the US vs 0.50 in China
• (BW, 5/13/02)

39
High Tech in China (BW, 10/28/02)

• Shanghai
• Chip plants are mushrooming in a new science park
  across the Huangpu River from the Fudan
  University campus
• Shades of Stanford and the Silicon Valley

40
High Tech in China (BW, 10/28/02)

• China had been the place to make sneakers not
  semiconductors
• But
• Chinese universities granted 465,000 degrees in
  engineering and science in 2001
• Approaching the total in the US
• Seven new wafer fabs by 2004
• Vaulting the country to the 2nd largest producer
  in the world

41
High Tech in China (BW, 10/28/02)

• But
• China can boast of little useful intellectual
  property
• And, no paradigm-bending industrial innovations
• Its software industry pales by that of India and
  Silicon Valley

42
High Tech in China (BW, 10/28/02)

• But
• It hasnt come up with a single blockbuster drug
• It has yet to curb widespread piracy
• It censors the internet

43
High Tech in China (BW, 10/28/02)

• But
• Total research spending is around US11 billion
  vs. around US233 billion in the US
• Semiconductor production was around US3 billion
  in 2001 vs. around US71 billion in the US

44
High Tech in China (BW, 10/28/02)

• Nevertheless
• Chinas early tech successes have convinced many
  Western executives that there are greater-and
  more worrisome-things to come
• Chinas energetic engineers can continue to clone
  the worlds most advanced telecom and computer
  devices
• And, market them to the world at rock-bottom
  prices

45
High Tech in China (BW, 10/28/02)

• Because
• The cost of an engineer in China is about
  US15,000/year vs. about US150,000/year in the U

46
Example Brazil

• Thousands of people move from pre-industrial
  villages to Sao Paulo
• Their first goal is a television set
• In front of the TV set, they make sacrificial
  offerings of fresh-killed chickens to Macumban
  spirits by the light of a candle

47
Citizens of the world

• Products are universally desired
• Companies are willing to sell the products
  globally
• As companies become global
• So do their competitors
• Global companies are hiring talented employees
  worldwide

48
Hotly contested markets

• Software
• USA
• India
• Machine tools
• Germany
• Consumer electronics
• Japan

49
Technological forces

• Locate research, design, and production
  facilities in close proximity
• Microsoft opens a research lab in Cambridge,
  England to take advantage of the expertise
  available in Europe
• On May 7, 2002, Microsoft agrees to buy Danish
  software maker Navision
• This gives Microsoft a European launching pad for
  its growing business of selling management
  software

50
Designed in China, (NYT, 4/21/02)

• Many Japanese companies are moving research
  laboratories to China
• China is becoming a country of low wages and high
  tech
• Computer engineers at 1/3rd the cost in Japan

51
Designed in China, (NYT, 4/21/02)

• Fujitsu and NEC
• Hiring hundreds of engineers for their new
  Chinese research units
• Hitachi
• Opened a RD unit in China in late 2001
• Honda
• Formed the Honda Motorcycle RD China Company

52
Designed in China, (NYT, 4/21/02)

• Matsushita
• Will employ 1750 by 2005 in their electronics
  development lab
• Nomura Research
• Will employ 1000 Chinese engineers by 2005
• Pioneer
• Expect to have 250 engineers in a research unit
  for audiovisual equipment software by 2005

53
Whats wrong with this ad?
Chinese characters
Stone lion
Toyota Prado
Chinese magazine
54
Chinas cultural fabric is a challenge to
marketers, WSC, 1/21/04

• Toyota Motor of Japan had to pull and formally
  apologize for 30 magazine and newspaper ads
  depicting stone lions
• Traditional sign of Chinese power
• But, the lions were saluting and bowing to a
  Prado Land Cruiser

55
Chinas cultural fabric is a challenge to
marketers, WSC, 1/21/04

• The Chinese characters say, You must respect the
  Prado
• But, the Prado translates into Chinese as badao
• Means rule by force
• Chinese said the lions were guarding the bridge
  over which the Japanese invaded in 1937

56
Global cost forces

• The availability of cheaper skilled labor
  attracts companies
• Many governments are willing to provide tax
  breaks or cost-sharing arrangements
• PTP in Johor, Malaysia

57
Political and economic forces

• Regional trade agreements can be a reason to
  expand into a particular nation
• May be to a companys advantage to obtain raw
  materials or manufacture in a specific area
• Production processes may be redesigned to avoid
  tariffs
• Almost finished goods are shipped to a trading
  block to avoid tariffs on finished goods

58
Political and economic forces

• Tariffs and trade agreements can effect what is
  imported
• Local content requirements
• TI and Intel make microprocessors in Europe
• Japanese carmakers produce automobiles in Europe
• Japanese carmakers developed the Infiniti and
  Lexus when the US put restrictions on the number
  of autos allowed

59
Political and economic forces

• Government procurement policies
• The US DOD gives a 50 advantage to US firms in
  the bidding process

60
Risks and advantages

• The world is converging toward standardized
  products
• This means that vast markets have opened
• Breakfast in Singapore Post Raisin Bran made in
  Indonesia with milk from Australia and mangos
  from Thailand
• These markets are far greater than managers could
  have imagined 20 years ago

61
Risks and advantages

• Firms can take advantage of this trend
• Vast economies of scale are possible
• Production, management, distribution, marketing
• Firms must understand the different demand
  characteristics and cost advantages of different
  regions
• But there are risks in globalization

62
Risks

• Fluctuating exchange rates
• Change the relative value of the product and the
  profit
• Change the costs of manufacturing, storing,
  distributing, and selling in a particular region
• The Coca-Cola Company
• Major profit declines when the European
  currencies dropped their value

63
Addressing global risks

• Speculation
• Hedging
• Flexibility

64
Speculation

• Bet on a particular scenario
• Example Japanese car manufacturers
• Late 70s, early 80s they bet on manufacturing
  only in Japan
• Assumed rising labor costs would be more than
  offset by exchange rate benefits and increased
  productivity
• For a while, this strategy paid off
• But, rising labor costs and unfavorable exchange
  rates began to hurt
• Toyotas are now made in Kentucky

65
Hedging

• Company designs the supply chain so that losses
  in one area of the supply chain are offset by
  gains in another
• VW makes cars in the US, Brazil, Mexico, and
  Germany,
• Some plants may be profitable while others may be
  less so at the same time depending on world
  economic conditions

66
The Americanization of Toyota

• BusinessWeek, April 15, 2002, pp. 52-54
• Its U.S. success is a lifeline as other
  important markets languish
• North American production has gone from
  400,000/year to 1,000,000/year over the last 10
  years
• Japanese production has gone from 4,000,000/year
  to 2,750,000/year over the last 10 years

67
Flexibility

• Enables a firm to take advantage of different
  scenarios
• Approaches include
• Production shifting
• Information sharing
• Global coordination
• Political leverage

68
Flexibility

• Production shifting
• From region to region to take advantage of
  current conditions
• Exchange rates, labor costs

69
Flexibility

• Information sharing
• A presence in many markets increases the
  availability of information
• Used to anticipate market changes and find new
  opportunities

70
Flexibility

• Global coordination
• To increase market leverage
• Example
• When Michelin began to target North American
  markets aggressively, Goodyear dropped its prices
  in Europe
• This forced Michelin to slow its overseas
  investment program

71
Flexibility

• Political leverage
• If governments are lax in enforcing contracts or
  international law, or they present expensive tax
  alternative, firms can threaten to move (or,
  actually move) their operations

72
Issues to consider

• International versus regional products
• The ideal company would build universal
  products
• Global products
• Ford Focus is available in both Europe and North
  America
• Coca-Cola, McDonalds hamburgers, Levis
• Luxury products such as Coach and Gucci
• Regional products
• There is no way that a Toyota Land Cruiser is
  going to navigate those small streets and park in
  Tokyo

73
Issues to consider

• Local autonomy versus centralized control
• Centralized control sounds like the better
  alternative
• But, it usually makes sense to allow local
  autonomy in the supply chain
• Often, headquarters cant refuse to tamper with
  the system, and performance suffers

74
Issues to consider

• Collaborators can become competitors
• Hitachi used to manufacture microprocessors under
  license from Motorola now Hitachi makes
  microprocessors
• Toshiba used to manufacture copiers for 3M now
  Toshiba is a major supplier of copiers

75
Issues to consider

• China
• Many firms are handing over critical
  manufacturing and engineering expertise to their
  Chinese partners
• Its only a matter of time until these partners,
  or others selected by the government, begin to
  compete

76
Is China the next bubble?(NYT, 1/18/04)

• Japan had its bubble in the late 1980s when the
  Imperial Palace grounds in Tokyo became worth
  more than all the land in California
• Thailand and Indonesia had their bubbles in the
  mid-1990s when speculators poured money into
  what seemed like a Southeast Asian miracle

77
Is China the next bubble?(NYT, 1/18/04)

• The USA had its Internet and telecommunications
  bubble in the late 1990s when stock prices
  looked as if they would rise indefinitely and
  unemployment kept hitting new lows

78
Is China the next bubble?(NYT, 1/18/04)

• Chinas economy looks invincible
• But, recent excesses suggest that China may be in
  a bubble now
• Frenzy of factory construction
• Speculative inflows of cash
• Soaring growth in bank loans
• When bubbles burst they usually do so loudly

79
Is China the next bubble?(NYT, 1/18/04)

• Signs
• Central bank trying to dissuade other banks from
  reckless lending
• Government had to bail out two large banks
• State Council of China is discouraging further
  construction of new factories in industries like
  aluminum and steel
• Capacity has grown swiftly over the last few years

80
Is China the next bubble?(NYT, 1/18/04)

• Business-cycle risk
• Too many companies are making the same
  calculations and investing too much in the same
  industry possibly leading to oversupply
• Protectionism risk
• Rapid growth and a persistent imbalance in
  Chinas trade with the others may lead to trade
  restrictions

81
Is China the next bubble?(NYT, 1/18/04)

• Financial risk
• As much as 45 of loans are nonperforming
• Political risk
• Peaceful moves toward a more democratic system
  may be possible, if it is gradual
• But, political instability could follow if the
  economy slows sharply

82
Logistics Asia-Pacific Style, John
JarvisOR/MS Today, 4/03
High-tech does not always dominate low-tech. A
team of TLI-AP researchers visited a warehouse in
China where they were given a tour of the
facilities. During the tour they were surprised
at the complete lack of automation. There were
few racks, no AGVs, forklifts or any other people
savers. During the discussion session they
couldn't help but comment of the lack of
automation. Their host, an executive with a
multi-national corporation, replied that his
operations research staff had looked into
automation, but that it could not be justified.
Salaries in that region were so low that no
amount of automation could ever be justified.
83
Logistics Asia-Pacific Style, John
JarvisOR/MS Today, 4/03
Land transportation is not an option. Indonesia
consists of approximately 13,000 islands, many of
which are quite small. About one thousand of the
islands have permanent settlements. A logistics
system designed to serve Indonesia, in large
part, must be made up of air and sea legs.
84
Regional differences

• Cultural
• Language consists of more than words
• Expressions, gestures, context
• Beliefs
• Americans are always interested in efficiency
• Many others are not that concerned with being on
  time
• Custom
• Gifts are not given by suppliers in the US
• Varies from country to country

85
Regional differences

• Infrastructure
• Road widths, bridge heights, communication
  protocols
• Geography
• In the US, large distances might exist between
  major cities requiring more inventory
• Contrast this with Belgium

86
Regional differences

• Economic conditions
• Cheap land and/or cheap labor ? Large low tech
  warehouses
• Coca-Cola in Mexico
• Expensive land and/or expensive labor ? Automated
  warehouses
• Coca-Cola in Japan

87
Regional differences

• Emerging nations
• Supply chain infrastructure is not fully in place
• Logistics is a necessary expense rather than a
  strategic advantage
• Focus of infrastructure is on exports

88
Performance expectation

• Do overnight carriers make their deliveries on
  time?
• Are contracts legally binding documents?
• Is the government too deeply involved in
  negotiations?
• Is customer service of concern?
• Are inventory shortages common?

89
Information system availability

• Are communications networks complete and reliable
  enough to support the expected traffic?
• Is technical support service available?
• Are EDI and bar coding supported?
• Are data available on the economy and population?

90
Human resources

• Are managerial and technically skilled persons
  available?
• Are managers selected for political or
  professional reasons?
• Are trained logistics professionals available?
• Do they have modern management techniques?

91
Where does your nation fit in the following?
   
 
92
Bridging the cultural divide, Inbound Logistics
(March, 2003)

• Cultural differences
• In the US, do it over the phone, profit is the
  motive
• In Asia, it takes face-to-face time, contact and
  trust
• Third parties
• In some parts of Asia, inviting a 3rd party to
  design and implement a SCM model for your
  business can imply that you have not done your
  job properly

93
Bridging the cultural divide, Inbound Logistics
(March, 2003)

• Contracts
• In the US, contracts are honored, or there is a
  lawsuit
• In some parts of the world, a commitment is a
  statement of intent
• If the situation changes significantly, you dont
  have to fulfill the obligation
• Example Currency devaluation

94
Bridging the cultural divide, Inbound Logistics
(March, 2003)

• Speed
• In the USA, make the decision today, implement it
  tomorrow, and see the results the day after
• Many cultures want to consider lots of
  alternatives before making a decision

95
Bridging the cultural divide, Inbound Logistics
(March, 2003)

• Language barrier
• Decide on a common language
• Invest in face-to-face meetings
• Particularly for someone new to the team
• Use other means of communication effectively
• Videoconferencing
• Communicate
• Write it down

96
Bridging the cultural divide, Inbound Logistics
(March, 2003)

• Bridge the gaps
• Learn another language
• Then you can get an idea why other people think
  differently than you do
• Develop facilitation skills
• Learn about other cultures so you can understand
  other people

97
Bridging the cultural divide, Inbound Logistics
(March, 2003)

• Bridge the gaps
• Get involved
• Eat the food, go to the markets, visit families
• Avoid generalizations
• There are vast differences within a region of the
  world and within a nation

98
End