IMBA 520 Week 6

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IMBA 520 Week 6

• Organizing and Production Strategies
  Internationally

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Today Organizing and Production

• Admin - exam date
• Tuesday, March 13 830am-1130am
• Open book except communication devices.
• Visualizing information
• Finance trade wrap-up
• Today Producing and organizing
• Strategic overview
• Organizing strategies operations
• Production strategies operations

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Diagramming Visualizing information...

• A powerful tool for all managers
• helps overcome language barriers
• understanding barriers - relationship, process,
  goal orientations viewpoints
• helps you analyze and understand how things work
  together.
• helps you explain complex situations.
• Shows everyone that you are a professional and a
  conceptual and strategic thinker. You understand
  the big picture. Something that is needed in
  senior management...

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Methods of Payments

• Payment in advance ? for exporter
• Open account ? for importer
• Form of trade financing
• Risk is much higher, of course - only for
  well-established, long-term customers or big
  firms.
• Factoring - selling foreign AR at a discount.
• Documentary collection
• Banks act as agents in trade process
• Credit cards - for small transactions
• Countertrade - barter, counterpurchase, buyback,
  offset purchases

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Methods continued

• Two forms of documentary collection
• Sight draft - payment required upon transfer of
  title
• Time draft - payment at some future date
• accepted time draft called trade acceptance
• if importers bank also accepts time draft, this
  time draft becomes a bankers acceptance

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and more!

• Letter of credit - promise issued by bank to pay
  exporter when it receives proof that the exporter
  has fulfilled requirements
• Documentation Export licences, certificates of
  origin, inspection certificates
• advised letter of credit exporter knows
• confirmed exporters bank guarantees it
• irrevocable LOC cant be changed
• revocable LOC can be changed

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What form of payment?

• Example 1
• Shipping to smaller company in Argentina from
  Canada
• You are a smaller company
• C800,000 order
• You dont sell normally to South America
• You sell to Europe and USA
• Risks?

• Example 2
• Shipping to Germany from Canada.
• You are a medium sized company.
• C 2 million order
• You sell normally to Germany and EU to other
  countries as well.
• Risks?

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Managing Global Cash Flows

• Careful handling of global cash flows is crucial
  for international success
• Prudent use of internal funds flows
• Use of funds positioning
• Multilateral netting

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1. Prudent use of internal flows
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2. Funds positioning

• Moving funds from one multinational operation to
  another
• Transfer pricing
• Arms length pricing or
• shifting profits via lower rate countries (2
  country approach) or
• through tax havens (3 country approach)
• Ethics?
• Fronting loans - political risk offsets.

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3. Multilateral netting

• Internal divisions internationally which sell to
  each other have their purchases and sales cleared
  quickly through their head office clearing
  account.
• avoids distortions in accounting
• cash is instantly available
• parent company can see who is holding cash
• economies of scale in currency conversion

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Operations Logistics

• Making things happen all over the world

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Ricola - case study

• How did Ricola become a company that sells to 50
  countries?
• What are their key strengths?
• How important are their partners?
• What is their production / distribution strategy?
  Draw a diagram of their value chain
• What do you think their international operation
  structure is like?
• Should Ricola open a factory in China?

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Strategic Overview

• We know things are different internationally
• We know that we need to be flexible
• But there are different modes of strategic
  orientation in companies Some organizations not
  capable of flexibility!
• Ethnocentric predisposition - parent company
  values and interests
• Polycentric - tailor strategy to local culture
• Regiocentric - profit and adjustment blend
• Geocentric - global view only

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Resources - the limiting factor

• Internal human resources are stretched?
• Finances are needed in parent company home
  country?
• Time is against the company - debt, intellectual
  property, product life-cycle, legal?
• Vision and leadership lacking?
• Ethnic or cultural orientations of employees?
• Satisfaction with status quo?

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International organizing

• Location choices (larger companies)
• China - manufacturing - up and coming Vietnam,
  Malaysia, Bangladesh, India.
• Local country - manufacturing when benefits to do
  so (laws, tax breaks, buy local, etc.)
• Europe / USA - research and development
• Regional hubs - distribution - Dubai, Singapore,
  Brazil, Hong Kong, Ireland,
• USA / Europe / Japan - ownership - more control
  and legal structures support

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For your project

• Assume that your country of choice is a good
  opportunity.
• Decide what your companys North American
  strategic orientation is.
• Analyze its strengths and weaknesses (briefly)
• Research operational aspects of your company
  product in your country. (in depth!)

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Homework!

• Reading up to Chapter 11-13
• Set aside time for doing the practice exam (last
  years)
• Work on projects!