Operations Strategy Essay Example

such as global market forces, that influence firms. Global Market Forces involve the need for firms to have local knowledge and modify products for different markets to meet customer demand and handle orders and customization needs quickly. Additionally, companies must explore new markets to sustain growth; however, a firm's potential for growth can be limited by a country's economy size. Nokia illustrates this phenomenon effectively.

The population of Finland, its home country, is 5.3 million, which is lower than the number of new mobile phones sold per month in the Indian market (around 8 Million per month).

Technological Forces:

Competitive success now relies on the speed and effectiveness with which a company incorporates new product and process technology into the design and production of its products. This need for speed has led companies to establish production and R&D facilities in other countries, closer to suppliers of advanced technological knowledge in production. Firms have chosen to share technology collaboratively or expand their operations to countries with cost-effective technological resources. Tata Motors pursued globalization by acquiring Jaguar and Land Rover's high-end technology operations, granting them access to sophisticated technologies used in producing high-quality automobiles that they can also apply to their operations in India.

Global Cost Forces:

One way to achieve cost advantages on a global scale is by concentrating operational activities in countries with lower costs. These countries differ in various aspects, including production costs, productivity levels, infrastructure, and the availability of skilled workers. Many companies are expanding their operations in India and China as a means to gain these cost advantages.

Political and Macroeconomic Forces:

Global macroeconomic factors, such as fluctuating exchange

rates, regional trade agreements, and managed trades, shape the global environment. As a result of these factors, companies must mitigate risks associated with their operations by establishing presence in multiple locations.

The recent fluctuation in the Indian Rupee rates with respect to the dollar has had a lesser impact on export-oriented firms that have operations in American and European locations. These firms also tend to seize political opportunities such as trade promotion, tax support, and safe investment options. Hindalco, for instance, has globally expanded its operations in Carbon black and textile business to exploit favorable investment opportunities in East Asian countries.

Now, let's explore the various options firms have for globalizing their operations. Depending on the forces for globalization they face, firms can choose to globalize their operations through organic expansion, mergers, collaboration, or outsourcing in order to establish a presence in any country.

Organic growth allows a firm to build operations from scratch, using their own tradition and best practices. On the other hand, mergers enable the firm to rapidly scale up operations using existing infrastructure and expertise. Collaboration provides the firm with a ready-made network of suppliers and customers in new markets. Outsourcing, on the other hand, allows the firm to access cost advantages or technical expertise without making significant long-term investments in capacity creation. Below, we discuss these modes in detail. Organic growth is suitable when firms have expertise in operations and want to go global to take advantage of environmental opportunities such as macroeconomic factors or resources in a specific geographic destination. In this case, the firm can establish its own operations using its own knowledge and expertise. Hindalco serves as a prime

example of such globalization, as it has built multiple carbon black and textile plants in several Asian countries to benefit from political and macroeconomic advantages. Mergers and acquisitions are a viable option for firms seeking access to existing assets and expertise in the target country.

The text highlights the advantage of fast scaling up of operations and accessing the supply chain by acquiring established capacities. Hindalco's acquisition of Novelis exemplifies this, as it allowed Hindalco to benefit from Novelis' plants and supply chain in various global locations. Consequently, Hindalco has become the leading manufacturer of aluminium products worldwide, with a presence in major markets.

Collaborations:

When a company intends to expand into a new country, it can achieve this through collaboration with an existing player in the target market. By collaborating, the firm gains access to the partner's logistics network and other support functions for sustained operations.

In order to expand into a new market, a company must join an existing network of suppliers and producers within the target market. The entities within this network generally prefer the entry of domestic players rather than outside firms. To overcome this resistance, partnering with a local company and utilizing its network for operational support is a viable solution. Additionally, the collaborating firm grants access to its logistics, which can provide a competitive advantage for the globalizing company.

Collaboration can enable firms to access new technologies, such as in the Pharmaceutical Industry where firms collaborate for technology development and use.

Outsourcing:

Outsourcing refers to the process of determining how and where to procure manufactured goods and raw materials. Manufacturers opt for outsourcing to reduce the amount of material they produce themselves, which can provide

them with multiple benefits.

Outsourcing can result in reduced production costs for a company by accessing lower-cost economies, known as "labour arbitrage," due to wage differences between countries. By outsourcing non-core tasks, organizations can concentrate on their core business and achieve the required expertise. Moreover, outsourcing offers access to operational best practices that may be challenging or time-consuming to develop internally, resulting in improved overall quality. Additionally, with the implementation of the Just in Time (JIT) concept, outsourcing has aided companies in decreasing inventory levels and reducing working capital expenses.

Global Operations Strategy to build competitive advantage: The organization must make explicit choices regarding the location of value-chain activities, product offerings, collaborators, and outsourced activities. Each activity in the value chain must be matched with locations that provide a favorable combination of comparative advantages, resulting in competitive advantages in global markets. Firms have the option to either locate complete value chains in each country where they operate or disaggregate their value activities and operate in specific locations that offer comparative advantages. To understand various approaches, let's examine the application of the AAA framework for determining the global operations strategy.

Adaptation approach:

(Adjusting to Differences) The adaptation approach focuses on customizing offerings to address local market variations. These variations can be attributed to differences in customer needs, tastes, local technology, and even protective local regulation. Often, these local markets are influenced by distinct differences in culture and traditions.

In India, the electrical distribution industry has segments that focus on power transmission in commercial and residential buildings, which are highly localized. These segments have unique local codes that prevent standardization.

Approach of Aggregation:

(Overcoming Differences) Ted Levitt's aggregation view suggests that everything in the

world is becoming more similar due to the homogenization of preferences. He believes that manufacturers can produce products in efficient plants, distribute them globally, and benefit from cost advantages due to economies of scale. The argument for aggregation is based on the idea that there is a convergence of common aspirations among people worldwide.

The industry characteristics that support a standardisation approach often revolve around the advantages of economies of scale and economies of scope. Industries with high levels of capital intensity tend to have greater scale economies compared to those with lower levels of capital intensity. Global industries like automobiles, fine chemicals, petrochemicals, and steel are particularly dependent on throughput volumes. These industries are well-suited for aggregation strategies, as long as there are no significant barriers to cross-border trade. The arbitrage approach involves seeking absolute economies rather than the scale economies achieved through standardisation.

The text highlights the notion of viewing differences between borders as opportunities rather than constraints. The concept of arbitrage is discussed, which involves capitalizing on disparities between national or regional markets. This can be achieved by locating different parts of the supply chain in various locations, such as having call centers in India, factories in China, and retail shops in Western Europe. An example is given of a fashion retailer that leverages design expertise from France, has low-cost production in countries like China, Sri Lanka, or Bangladesh, and sources fabric inputs from India. Companies may prioritize different aspects (referred to as "A's") at different stages of their global expansion, and some may incorporate all three. IBM serves as an example, as it previously pursued an adaptation strategy by establishing mini-IBM branches in

each target country. These branches performed a comprehensive range of activities and adjusted to local differences as necessary, excluding R;D and resource allocation.

IBM implemented a regional structure in the 1980s and 1990s to improve coordination and generate economies of scale at both regional and global levels. In recent years, IBM has been leveraging country-specific differences, such as increasing its workforce in India from 9,000 employees in 2004 to 74,000 by the end of 2007. The majority of these employees are part of IBM Global Services, which is growing rapidly but with low profit margins. Instead of raising prices, IBM aims to enhance profitability by reducing costs. Looking ahead, the globally integrated enterprise is emerging as a new type of multinational corporation (MNC), offering potential benefits for both business and society.

From a business perspective, the concept of a "global" company is more suitable than a "multinational" one. In 2006, Sam Palmisano, CEO of IBM Corp, introduced the term "globally integrated enterprise" to describe an organization that strategically plans its operations and management with the aim of integrating production and value delivery globally. The traditional limitations imposed by national borders no longer restrict corporate thinking or practices. The globally integrated enterprise has the ability to allocate different functions anywhere in the world based on factors such as cost, skills, and favorable conditions. This organizational model has emerged due to the interconnected nature of everything, enabling work to be conducted in the most optimal location.

The barriers that used to impede the flow of work, capital, and ideas are decreasing. Firms engage in four primary categories of activities: support, strategic, utility, and partner component. As technology improves and the

world becomes more interconnected, firms will concentrate on their core strengths and seek partners to delegate non-core tasks. The firm's ability to meet customer demands will largely depend on how it manages its intricate operations, which will become even more complex in the future. It is not unrealistic to expect more firms adopting a distinctive supply chain model similar to Nike's. Nike focuses on design and brand promotion, sources raw materials globally, manufactures in cost-effective countries, outsources non-core activities, collaborates for global logistics management, and creates value for shareholders and customers.

References

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