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Operations Management and TQM: Chapter 2 Operations Strategy in a Global Environment
Engr. Sherryl Mae V. Quianzon, PIE, REB,MBA,CLSSYB
Overview
This video explores operations strategy in a global environment, explaining why companies expand internationally and how they achieve success. It details six key reasons for globalization: improving supply chains, reducing costs, enhancing operations through best practices, understanding markets, improving products, and attracting global talent. The video also defines mission and strategy, outlines three competitive strategies (differentiation, cost leadership, and response), and discusses the decision-making process for global operations, including outsourcing and its associated risks. The core message emphasizes aligning global operations with a company's mission and strategy to achieve competitive advantage.
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Chapters
- Companies expand globally to access better resources and improve their supply chains by sourcing materials and labor from optimal locations.
- Globalization helps reduce operational costs and mitigate risks associated with currency exchange rate fluctuations.
- Operating internationally allows companies to learn from global best practices and improve their own operational efficiency.
- Companies go global to gain deeper insights into diverse markets and customer preferences, leading to better product development.
- Global operations enable companies to attract and retain top talent from anywhere in the world.
- Companies often improve their products by incorporating innovations and technologies learned from different international markets.
Understanding the motivations behind globalization is crucial for identifying opportunities and developing effective strategies in an interconnected business world.
Jollibee sourcing spices from India and packaging from China, or Samsung choosing Vietnam for manufacturing due to cost-effective labor, proximity to materials, and government incentives.
- A company's mission defines its fundamental purpose and reason for existence.
- Strategy is the plan or 'game plan' for how a company intends to achieve its mission and goals.
- Companies can win in business by focusing on one of three competitive strategies: differentiation (being unique), cost leadership (being cheapest), or response (being fast and flexible).
- Global operations require aligning all activities across different countries to support the overarching mission and chosen strategy.
- Decisions about locating facilities, selecting suppliers, and managing logistics must align with the company's primary strategic priority (cost, uniqueness, or responsiveness).
A clear mission and a well-defined strategy provide direction and focus for all operational decisions, ensuring coherence and effectiveness in a global context.
KFC maintaining a global mission of serving great food but adapting its strategy in Japan (differentiation through quality control), India (cost leadership through local sourcing), and China (response through strategic distribution).
- Differentiation strategy in global operations involves setting up specialized facilities in countries known for specific expertise or quality, like luxury watchmaking in Switzerland.
- Cost leadership strategy globally means locating operations in regions with lower labor costs or better access to raw materials, such as electronics manufacturing in China.
- Response strategy globally requires strategically positioning distribution centers worldwide for quick delivery, exemplified by Amazon's global warehouses.
- Companies must choose one primary strategy and excel at it, as attempting to be optimal in all three (differentiation, cost, response) is not feasible.
Applying the correct global operational strategy based on a company's core competitive advantage is essential for maximizing efficiency and market success.
Amazon's global warehouses enabling rapid delivery to customers worldwide, illustrating the response strategy.
- Outsourcing involves hiring external companies to perform specific tasks or functions rather than doing them in-house.
- Key benefits of outsourcing include allowing companies to focus on their core competencies, reducing costs by leveraging specialists, and gaining access to new technologies.
- When deciding on outsourcing providers, companies evaluate criteria such as cost reduction, capital investment, skilled personnel, quality improvement, access to technology, capacity creation, and alignment with company culture.
- Potential risks of outsourcing include issues with quality control, loss of control over critical functions, dependence on suppliers, and the possibility of creating future competitors.
Outsourcing is a significant strategic decision that can offer substantial benefits but also carries risks that must be carefully managed.
Apple designing phones in California but manufacturing them in China, or US companies using Filipino call centers for customer service.
Key takeaways
- Globalization offers companies multiple strategic advantages, from cost reduction and supply chain optimization to market understanding and talent acquisition.
- A company's mission and strategy are the guiding principles for all its global operational decisions.
- Companies must choose a primary competitive strategy (differentiation, cost leadership, or response) and tailor their global operations accordingly.
- Effective global operations require aligning decisions about location, suppliers, and logistics with the chosen strategic priority.
- Outsourcing can be a powerful tool for efficiency and focus, but requires careful selection of partners and management of associated risks.
- Even seemingly local businesses are often part of a global supply chain, making global operations principles relevant to all managers.
- Understanding customer needs and operational best practices in different markets can lead to product and process improvements worldwide.
Key terms
GlobalizationSupply ChainCost LeadershipDifferentiationResponse StrategyMissionStrategyOutsourcingCore CompetenciesGlobal Alignment
Test your understanding
- What are the six primary reasons companies decide to expand their operations globally?
- How does a company's mission and strategy influence its global operational decisions?
- Explain the differences between differentiation, cost leadership, and response strategies and how they apply to global operations.
- What are the main benefits and risks associated with outsourcing in a global context?
- How can a company leverage international operations to improve its products and learn from global best practices?