Operations Management: Managing International Operations
One of the modes of business today is international operation. The reasons for entering international markets may come to an organization because of many reasons; some are a reaction to the situations in the domestic market like competitive pressures, over production, declining domestic sales, fully filled up domestic markets, excess capacity of production in the domestic market, etc. even when a foreign competitor enters a market, it may provide the force for a domestic producer to enter other markets as it may not be able to sell its production in the domestic market. (Czinkota; Ronkainen; Moffett, 1996) This intention may even be sparked off by an unsolicited order from a foreign country.
Most of the time however, the companies try to get extra profit by tapping international markets. This is not an easy exercise, and many inexperienced companies often fail. Companies, which have a proprietary technology often, feel that if they go abroad they will be able to run it the same way as they are running it at home, and earn more profits. Once the decision has been made to enter a foreign market, there may be two methods of entering the market: through non-direct foreign investment or through direct foreign investment. We are here going to concentrate on entering foreign markets through direct investment.
Direct foreign investment may take on different forms. The first consideration in this is that there will be a capital flow from the company to the country where it is going to set up its unit. This will naturally make it a long-term association, and the company must take a conscious decision on this investment aspect. In this approach to direct investment, the investment itself can be divided in two parts: direct investment or portfolio investment. In the direct investment, this means that the control of a foreign company has to be purchased. This may be an existing company or a company that is about to start. Normally the investment in an existing company will start as a portfolio investment. This will help in the judgment as to whether the foreign company is worth purchasing or not. Then further involvement may be sought. If the foreign investment or manufacture is coming up in this manner, then it is only a modification exercise for the entire facilities. The modification will take place depending on the buyer company's own culture, and practices.
In other cases, the foreign operations will be established either as Greenfield operations or from an operation where an international company has purchased the company. In some cases of these companies this may even involve the government or government controlled agencies. In cases where the foreign company involves a joint ownership there are advantages of a lower risk than in totally owned companies, and may be advisable in some cases where the Government has a strong control over industry and development. This will however change the type of management required to a partnership type of management. The most important factor in any type of a successful international roll out will be the own competence of the international company. Normally most experts feel that managers who have international experience are the best (Burgel; Murray, 2000).
This will help the newly established company to take off very fast, as the managers will have the necessary experience to do it. This is always an essential requirement for international operations. The experienced manager will be able to tell the international company about the operational requirements in the new country. There are always a set of laws in any country, and these vary a lot. So, the experienced manager already knows about these laws and can help in the implementation from the first day. The manager will also have an existing set of contacts and potential partners for distribution, maybe sales, advertising, etc. This will always help a new company. (Holmlund; Kock, 1998)
Let us now come down to the direct operational aspects of the new unit in the foreign country. Here the operational manager has to work in the same professional manner that he has to work in any other country. The basic rules about management do not change. In a foreign country what changes are the people that he has to deal with. Like in any other area of life, business is also dependant on culture. People in all fields of activity - especially in productivity and operations will differ. The culture of the home country will not apply in the foreign country. The managers may have a lot of experience in their own country and have probably been brought over only to give the new unit a good start. In the new country they should first try to judge the national culture of the new workplace.
These differences may arise because of differences in language, religion, value systems, customs and education. These are the most important of all aspects. In business situations culture has been defined as "an integrated system of learned behavior patterns that are characteristic of the members of any given society" (Czinkota; Ronkainen; Moffett, 1996). This will influence the day-to-day operations in the factory. The most important thing to do get an awareness of this factor is to visit all the regions within which the company operates and get a first hand experience of the culture. Some models have been developed on this. One of them states that international business activity has to be seen as an innovation within the organization and that this will produce changes within the organization - both in the home country as well as in the foreign country. (Sheth; Sethi, 1977)
This change will be determined by three main factors - dominant cultural lifestyles of individuals in the organizations, change agents and strategic opinion leaders of all types and the communication of innovation. These will be influenced by the effort made by the management in trying to be close to the employees, the assurances of the future of the organization as seen by the employees, the quality of the individual leadership provided by the top management of the new organization, and the masculinity shown. The last point is because most people still tend to follow men as leaders and not women. We shall come back to this point of the importance of human relations at the end of this essay.
The next point to be considered is the forecasting of the results to be achieved by the foreign organization. This depends a lot on how the new organization has come into being.
If it is an old organization, which has been bought over by the foreign company, it is clear that previous production results will provide a good indication as to what will be a realistic forecast. This factor will also improve due to the new technology brought in by the international organization. The point to consider here again is the necessary motivation of the employees. Often bad units are sold by existing managements. Here there may be a problem with machines or men. This can be decided by sending experts from the international organization and corrective action. Sometimes, it may be necessary to get rid of some people. To achieve this no long-term employment contracts should be given to the workers in the foreign organization.
It may be even required to pay off the previous existing staff by paying off their long-term dues, and recruiting them fresh in the new organization. This will normally help retain productivity. If it a newly set up Greenfield activity, then the point to be remembered is that the workers are not experienced and will take time to pick up productivity to the levels that are achieved in the home country. For this purpose, a reasonable training time should be provided. It is better however to take on staff fresh from schools and colleges rather than old hands. The old hands will always carry their own baggage of previous work practices which may not be suitable for the international organization. (Schroeder, 1993)
Next we get into the area of goods and services of the foreign organization. This will primarily depend on the reason why the international company has set up the foreign company. As discussed earlier, it may be to exploit the new market with their own products. In that case, the lines to be transferred to the foreign company will depend on the suitability and technological level achieved by the foreign country. This is under the assumption that the produced goods will be consumed in the foreign country. But, in today's world this is no longer true. Many goods are produced in a foreign country by an international company to be sold in a third country. This is often enough because of the wage levels, price levels, and people availability levels.
Many industries have shifted from Japan to Taiwan and then onto Malaysia or Indonesia. One example that readily comes to mind in this regard is Panasonic. Even services are following a similar trend with the…