Global Operations Management

Global Operations Management: A Discussion When an entrepreneur first launches a company, most of the labor and materials can be covered domestically and in-house. However, as the business expands, it makes more and more sense financially to move the production overseas. For many companies, using a foreign supplier is the answer to absorbing the bulk of the burgeoning sales and administrative expenses. There are both marked benefits in the development of manufacturing outside of the United States, as well as significant disadvantages.

Engaging in such an endeavor requires much preparation, flexibility and overall understanding of cultural diversity among nations, races and ethnic groups. Such an endeavor is best for only highly skilled managers who have experience in managing both delicate and nuanced interactions between peoples and cultures. Benefits The most obvious advantage of creating a manufacturing operation outside of America is reduced cost. “Choosing to outsource your manufacturing can potentially reduce your costs of labor by up to 80% depending on the labor intensity of your product.

The reduced operating capital will allow you to channel more funding towards marketing, research and development, salaries, as well as other areas that can help improve your bottom line” (sourcingoverseas.com, 2017). When one opens up a production facility in another country, the manufacturing costs are markedly lower than those in the United States. Labor tends to be one of the biggest manufacturing costs and foreign labor is often markedly less expensive than domestic labor.

When one combines this with lower utility costs of running a plant, lower costs of real estate, and lower overall taxes and material expenses—it makes the endeavor of manufacturing abroad extremely attractive. Another advantage to manufacturing outside the United States is actually not as well known, but many small business owners have argued that they get better service outside America for their manufacturing needs.

Many entrepreneurs who have smaller businesses, such as ones half the size of behemoths like Target or Wal-Mart, have argued that when they contact domestic manufacturers, they don’t even receive the decency of a call back. Many domestic manufacturers refuse to do business with companies that aren’t massive. As one entrepreneur wrote, “On the other hand, I never had difficulty finding a Chinese factory that was willing to work with me as a smaller company” (Shugar, 2016).

Another benefit that companies speak of when it comes to doing business overseas is that there is more of a pervasive “can-do” attitude. For example, as one small business owner explains, “I never experienced a factory in China that was unable to produce a large order for me. Most times, when a Chinese factory tells you they can produce your order in four weeks, they produce your order in four weeks” (Shugar, 2016).

There have been numerous complaints from business owners who have manufactured domestically that there are limits to the domestic capacity of orders or often delays in time. Foreign manufacturers are known for the their aggressive turnaround times that often exceed expectations of the American company. The benefits of manufacturing overseas are numerous, and much of these reasons are connected to the more positive attitude towards business and the enormous manpower available.

This means that American companies can experience a shorter manufacture to market time, meaning that they can grow their business more aggressively. The access to more manpower means that entrepreneurs can delegate with greater skill and to a greater extent, allowing them to refocus their energies on their main abilities and the development of their overall business. Hence, having access to a large group of skilled workers is highly significant and nothing to underestimate for a company of any size.

Furthermore, many entrepreneurs have argued that setting up manufacturing in America isn’t worth the costs or troubles, given how many regulations there are for factories. Foreign countries often have fewer regulations, which make them more conducive to attracting business from US companies. Finally, some entrepreneurs have made the compelling argument that many foreign countries offer stellar duplication capabilities. While no one should be outright copying anyone else, there are definitely times in business where one doesn’t need to reinvent the wheel.

“For example, if you're manufacturing shirts and you like the fit of Shirt Brand ABC, then buying Shirt Brand ABC and asking your Chinese factory to duplicate its dimensions and fit is an easy way to begin your product-building process. Quite frankly, no one does that better than the Chinese” (Shugar, 2016). This excerpt demonstrates that foreign companies offer a means of specific problem solving for companies that is very attractive and sometimes a necessary way of simplifying design and/or production.

Disadvantages However, the disadvantages of developing a manufacturing facility abroad are immense and should not be taken lightly. One obvious concern would be regarding quality control of products: given the distance and time away from the manufacturer based in a foreign country, it could be increasing difficult to ensure that quality standards are continually met. “To maintain quality control over your product, you might need to spend more on management, including hiring one or more managers to live near the production facility.

The other option to monitor quality is to increase your travel expense by sending managers to the facility on a regular basis” (Ashe-Edmonds, 2017). Of course, there’s a natural disadvantage to these checks and balances in that they can chip away at the savings incurred from manufacturing overseas. One way to circumvent quality control issues is to select an areas where other manufacturers have already set-up, as there’s likely to be a highly qualified labor force there (Ashe-Edmonds, 2017).

Another consideration to note is that some entrepreneurs argue that certain goods, such as textiles are ideally manufactured in China with a higher regard to quality; and that things which are more detailed and technical, such as electronics, should perhaps be made domestically (Shugar, 2016). “Yet, with any factory -- overseas or domestic -- it will be important to stay on top of quality control because mistakes happen and shortcuts are made no matter where the factory is located.

I used an agent when manufacturing in China who was responsible for ensuring the quality and accuracy of the manufacturing of our goods along the process” (Shugar, 2016). This entrepreneur argues that the benefits to quality and minimal cost have been well worthwhile. Another drawback to manufacturing overseas is that there can be many compounded costs with shipping, customs, taxes, and delays in arrival (Ashe-Edmonds, 2017).

It all depends on where you sell your product, as producing in a foreign country can sometimes made shipping less of an overall headache, rather than shipping from the United States (Ashe-Edmonds, 2017). For example, if one is manufacturing in China, it is likely in some remote city, as that is where most of the factories are located.

Calculating the expense of the “landed cost” which is the final cost of goods once they have arrived at your front door in addition to the duty cost collected by the US government is what determine the final price (Shugar, 2016). It’s also important to account for the time difference and the time in connection to shipping. Most shipping will be done by sea which takes 30 days; this is in comparison to domestic shipping which can be done in one day if need be.

Hence, for some sellers, the shipping time, costs, and complications can make manufacturing abroad an unsuitable option, particularly when one accounts for the lost sales that will have occurred during the potential 29-day period when one won’t have any goods in stock (Shugar, 2016). Shipping one’s goods via air is an option as well, if time is of the essence. Just keep in mind that’s an expensive option, but one which can help make up for potentially lost sales or lost client bases (Shugar, 2016).

Another concern for the American business would be the overall political climate and general stability of the nation where the manufacture will be taking place. It would be naïve to assume that one should expect the same level of stability as the US with minimal corruption. Many nations overseas have their work force sullied and enabled by political instability and corruption: “Political instability can rear its head in the form of a coup, revolution or terrorism.

You might also have to deal with a culture of bribery and organized crime, with little or no law enforcement able to help you” (Ashe-Edmonds, 2017). This can be an incredibly treacherous way to do business, and for some companies, it’s just not worth the marked savings in manufacturing overseas. Depending on what is occurring within the foreign nation politically there might be unexpected price hikes that could leave one feeling blind-sided. These are all issues that the average entrepreneur and American company need to keep in consideration.

Moreover, it’s also crucial to bear in mind that developing a manufacturing facility overseas could also result in stigma and a public relations issue. With the election of President Trump and even before, there has been more and more impetus to bring manufacturing jobs back to the United States, and to boycott American companies that do such business overseas.

“If word gets out that your product is not made in the U.S., the media might report this, social media campaigns might damage your reputation or your competitors might use this fact in their advertising to take market share from you” (Ashe-Edmonds, 2017).

In opposition, if one intends to sell one’s products to the people in the area where the manufacturing will occur overseas, increased sales might be had as a result of all the positive press received from all the jobs given to the region via the manufacturing facility. Effective Management Effective management is crucial to successful manufacturing overseas and effective managers need to have a global mindset. “Global mindset is the combination of nine different attributes. And these nine attributes we categorize into three dimensions.

We call them capitals. Global psychological capital, intellectual capital and social capital. Intellectual capital is very much your knowledge of your industry, how your industry, your competitors, your customers work in different countries” (Tao, 2013). Likewise psychological capital exists also and it is connected to emotions and innate interests (Tao, 2013). Often managers and management branches that succeed are ones that have a passion for diversity and an organic desire to learn more about the nation and culture where the manufacture is taking place (Tao, 2013).

Dedicating energy towards learning and bridging the gap among cultures is absolutely key in order to make the entire overseas manufacturing endeavor successful. Finally, social capital revolves around how one builds relationships with people from all over the globe (Tao, 2013). An important factor of this is intercultural empathy: how easily as an American manager can one put oneself in the shoes and perspective of a Chinese manager? (Tao, 2013).

Just In Time Manufacturing and Strategic Alliances Just-in-time (JIT) inventory manufacturing is a method of ordering and receiving products for customer sales only on an as-needed basis. This method is a departure from the old days of carrying large inventories, just in case there was a surge in customer demand, something that was known as safety stock (Peavler, 2016). There’s an inherent benefit to this method in that it means that companies naturally minimize their inventory costs by bolstering efficiency and minimizing waste (Peavler, 2016).

Naturally, in order for this method to be a success, there needs to be a proper forecast of demand. Inaccurate forecasting means that this entire method won’t meet there real demands of the market. Similarly with strategic alliances, there are still distinct advantages and disadvantages, but the right pairing should ensure that collective goals are more readily and more quickly met. Strategic alliances mean that more knowledge sharing occurs and that the pair can be exposed to other markets previously unseen.

Technology and Real Life Examples Clearly, technology can’t help but support the opportunity for using OUS resources to manage production. Tracking, live-streaming, video-chatting and a host of other technological tools are readily available to ensure that the foreign manufacturing process is smooth and that transparency prevails all around. Technology means that problems can both be anticipated more consistently and solved more readily. Two companies that utilized resources of manufacture overseas with success consistently have been the giants Apple and Nike.

In fact, the rapport between Apple and Foxconn, the manufacturing firm, is exceedingly well known, and many experts credit the success of Apple to this relationship. One reason.