COMMERCE 4OB3 Chapter Notes - Chapter 2: Mercosur, Service Design, Southeast Asia Treaty Organization

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4 Feb 2013
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A GLOBAL VIEW OF OPERATIONS
- Globalization means that domestic production and exporting may no longer be a viable business
model; local production and exporting no longer guarantee success or even survival
- There are new standards of global competitiveness that impact quality, variety, customization,
convenience, timeliness, and cost
- Six reasons why domestic business operations decide to change to come form of international
operations are:
1. Reduce costs (labour, taxes, tariffs, etc.)
2. Improve the supply chain
3. Provide better goods and services
4. Understand markets
5. Learn to improve operations
6. Attract and retain global talent
Examine each of the six reasons individually
REDUCED COSTS
- Many international operations seek to take advantage of the tangible opportunities to reduce their
costs
- Foreign locations with lower wages can help lower both direct and indirect costs
- Less stringent governments regulations on operation practices can reduce costs
- Shifting low-skilled jobs to another country has several potential advantages:
i. The firm may reduce costs
ii. Frees higher cost workers for more valuable tasks
iii. Allows the savings to be invested in improved products and facilities at the home location
- Trade agreements have helped reduce tariffs and thereby reduced the cost of operating facilities in
foreign countries. Agreements incluce:
o The World Trade Organization (WTO)- an international organization that promotes world
trade by lowering barriers to the free flow of goods across borders
o NAFTA- a free trade agreement between Canada, Mexico and the States
o APEC, SEATO, MERCOSUR, CAFTA
o European Union (EU)- a European trade group that has 27 member states
IMPROVE THE SUPPLY CHAIN
- The supply chain can be improved by locating facilities in countries where unique resources are
available.
Example expertise, labour, or raw material
PROVIDE BETTER GOODS AND SERVICES
- Improving understanding as a result of a local presence permits firms to customize products and
services to meet unique cultural needs in foreign markets
- Another reason to have international operations is to reduce response time to meet customers’
changing product and service requirements
UNDERSTAND MARKETS
- Due to international operations’ interaction with foreign customers, suppliers, and other
competitive businesses, firms inevitably learn about opportunities for new products and services
- Knowledge of these markets not only helps firms understand where the market is going, but also
helps them diversify their customer base, add production flexibility, and smooth the business cycle
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