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globalisation, technology, quality expectations, cost-based competition, government policies, legal regulation, environmental sustainability
Define:
Globalisation- refers to the removal of barriers of trade between nations
Tariffs- taxes on imports
Quotas- restrictions on numbers that can be imported and bans between nations.
Globalisation
Globalisation
It is characterised by an increasing integration between national economies into a single market where goods and services can be traded easily.
Globalisation allows consumers the opportunity to purchase products from the business that provides the most value for money.
Globalisation – impact on outputs
Businesses can now access new markets by selling overseas.
This might increase the quantity of outputs.
Products might need to be varied due to factors unique to different countries (such as tastes and preferences, cultural values, safety regulations and government policies).
Consequently operations may need to adapt to producing a greater variety of products or more customisation.
Businesses are likely to face more competition from overseas producers and will need to be find ways to reduce costs.
Globalisation – impact on inputs
Operations managers would also have access to a larger market for resources, which would influence decisions about production inputs.
Parts of materials might be cheaper overseas but quality must also be considered, along with the reliability of the supplier.
Labour is also often cheaper overseas, and ways that operations have changed in response include outsourcing or moving plants and factories overseas.
Case Study Example
Case Study Example
Globalisation and IKEA
Globalisation and IKEA
1- “IKEA has 31 trading service offices in 26 countries. This allows us to be close to our suppliers -about 1,220 in 55 countries - so we can monitor production, test new ideas, negotiate prices and check quality while keeping an eye on social and working conditions.”
2- “Rather than scouring the world in search of suitably economical products to sell, IKEA begins with design specifications and a price objective and then solicits solutions from manufacturers who can meet those specifications and that objective.
Given IKEA's worldwide market, the incentive is powerful and often leads to innovative new manufacturing processes and effective uses of materials. IKEA's constant expansion into new markets and the ever-evolving economies of the countries where IKEA seeks to source its products mean that the particulars of what gets manufactured and where it gets made is continuously changing.”
- Bill Nelson, “Where Is Ikea Furniture Manufactured?” Hunker, May 17, 2018
Typical Global Businesses
Typical Global Businesses
A typical global business can be described as one that is integrated with the economies of a number of different countries.
Manufacturing may be located where inputs and labour are cheapest (developing country)
Raw materials sourced from where they are most abundant
Finance is controlled from headquarters situated in one of the world’s financial centres.
The reason for the global web of operations is to drive costs down and exploit the competitive advantage each region has to offer.
Different countries have become known for having particular strengths that business wish to take advantage of:
Japan
Technological Innovation
Italy
Contemporary Design
China
Inexpensive Labour
India
Computer Literate Workforce
Globalisation – supply chain management and the global web
The supply chain refers to the range of suppliers a business has and the nature of its relationship with those suppliers.
It is vital that a business has an effective (predictable and reliable) supply chain which is responsive to changes in demand to allow for the smooth flow of the operations function.
The business wants to avoid breaks in production as costs would be wasted.
Global Web
Global web refers to the network of suppliers a business has chosen on the basis of lowest overall cost, lowest risk and maximum certainty in quality and timing of supplies.
In supply chain management, the global web strategy is one in which the business aims to minimise cost across the range of its suppliers.
What is Supply Chain Management?
What is Supply Chain Management?
Managing Supply
Managing Supply
Case Study Example
Case Study Example
With globalisation every function can be outsourced or relocated to reduce costs.
Apple products are designed in the US, using Japanese electronic parts, and assembled in China.
Globalisation can cause problems such as during Covid-19 crisis. Pandemic initially hit manufacturing in China and then the rest of the global supply chain of companies and the development team in U.S.
Different Currencies
Different Currencies
When operating in numerous countries a business will have to convert currencies in order to pay suppliers for inputs.
A depreciation of the Aussie dollar against the currency of the country inputs are being sourced will lead to rising costs.
A business might choose to reduce this risk by Hedging (Finance Strategy)
This is the practice of protecting the business from adverse changes in exchanging rates by entering into a contract at the present time to buy or sell foreign exchange at a specified rate on a given date in the future.
Trade Agreements
Trade Agreements
Trade agreements can enhance trade opportunities by reducing trade barriers e.g. tariffs.
A bilateral trade agreement is similar to a treaty between two countries to reduce barriers to trade and promote economic integration.
Australia has numerous bilateral trade agreements with New Zealand, Thailand, Singapore and ASEAN (Association of South Eastern Asian Nations).
Multilateral trade agreements are between more than two nations.
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