Issues and potential problems with international location.docx

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University of Calgary
Management Information Systems
MGIS 317
Ronald Schlenker

Issues and potential problems with international location 1. Language and other communications barriers Distance is a problem because there is less face to face contact, also when some operations are abroad language can be another problem. 2. Cultural differences This is the consumer´s tastes and the religious factors that determine what goods should be stocked. 3. Level of service concerns This applies to the off shoring of call centres, technical support centres and functions such as accounting. Some consumer groups argue that off shoring of these services has led to inferior customer service due to time difference problems, time delays in phone message, language barriers and different practices and conventions. 4. Supply chain concerns There may be loss of control over quality and reliability of delivery. 5. Ethical considerations There may be loss of jobs when a company locates all or some of its operations abroad. Scale of operations Scale of operations - the maximum output that can be achieved using the available inputs – this scale can only be increased in the long term by employing more of all inputs. Factors that influence the scale of operations  Owners objectives  Capital available  Size of the market the firm operates in  Number of competitors  Scope for scale of economies Economies of Scale This is the reductions in a firm’s unit (average) costs of production that result from an increase in the scale of operations. The cost benefits arise for five main reasons  Purchasing Economies These economies are often known as bulk-buying economies. Suppliers will often offer substantial discounts for large orders. This is because it is cheaper for them to process and deliver one large order rather than several smaller. In addition, they will obviously be keener to keep a very large customer happy due to the profits made on the large quantities sold.  Technical Economies Technical economies, basically is the use of technology to have a greater output than the labour work-force. This will make the unit cost of the products much lower, and so they will make more at a less cost.  Financial Economies This economy of scale refers the ease of getting liquidity in the firm. Larger firms will be better off getting money, by two main ways: Firstly by the use of banks and other lending institutions which are giving preferences to the large business to get this loan with a proven track record and that the business shows that if one product fails they will not be bankrupt, meaning that they have diversified products. Banks receive money with the interest rates, which are lower to larger firms, compared to small firms, and especially newly formed businesses. The second way is by the issue of shares, if the firm is a PLC. This will allow them selling many millions of dollars’ worth of shares.  Marketing Economies Marketing costs obviously rise with the size of the businesses. So the larger firms which do have finance available, they tend to employ marketing managers, of advertising agencies, to study the market and direct specifically adverts to them. These costs can be spread over a higher level of sales for a big firm and this offer
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