Introduction
In the modern business world, globalization is talked about constantly. One of the factors of globalization is global production, and with these factors come many decisions that a firm must make if they are considering producing for a global market. The primary decision however is location, picking the most strategic location will either make or break an international company.
The Idea in a Nutshell
Global Production is not as simple as one might think, and at the same time it is simple. If you can nail down a good location, you have half the battle already won, but at the same time there are multiple complex issues you have to face as a global competitor. Issues such as evolving and changing markets, demand stretching out over the world, and even what the weather conditions are like in the country your business is located in. Imagine if your business had facilities and did all of its production out of Japan.
The Top 10 Things You Need to Know About Global Production
1. Many companies turn to Global Production because the cost of labor in less developed countries is significantly lower. Although; companies must also realize that there are other costs, such as the cost of space, tariffs, and other expenses related to doing business internationally.
2. Time is an issue that must be taken into consideration when deciding if and where to place an international facility. Any goods produced and exported in a global market will suffer an increased lag because of the time it will take for the goods to reach their destination.
3. A company can serve a global market while being centralized or decentralized. The centralized company needs to place its facility in the location that will give it best benefit. A decentralized company will have many facilities located around the world.
4. Centralized companies may have the advantage of cheap raw materials if they are strategically placed in a country where those materials are easily accessible. The country they are located in may have especially skilled labor for their industry.
5. Decentralized companies have the advantage of being able to produce and meet demand in different locations very efficiently. When tariffs are high, a decentralized country has an advantage since they can produce and sell in the countries their facilities are in without having to import their goods and pay the high tariff tax.
6. Technology and the internet has been a major contributor in making Global Production possible. Technological tools such as electronic data interchange (EDI) allows firms to monitor their materials and manufacturing internationally.
7. Whether the company is centralized or decentralized, every company needs to carefully look at the stability of the country they wish to operate in. Ruthless dictators, civil wars, corrupt governments and even just rampant crime can be vital factors when deciding on a location.
8. When a corporations, investors or government has to deal with issues in other countries related to their stability, it is known as Political Risk.
9. Products are a major factor when trying to pick a location. A products value-to-weight ratio is used in determining how far you want your product to be shipped. If your product has a high value-to-weight ratio, then they are expensive and do not weight very much, meaning that shipping them half way across the world is a very small cost relative to the total cost.
10. With globalization, and the global market growing daily, one of the major decisions all firms have to make is whether to outsource or make a product themselves. Often firms can outsource parts of their operation to a foreign firm, which will result in cost reduction.
The Video Lounge
Kasra Ferdow on Global Production Management:
Kasra Ferdow talks about the issues companies will face with global production management. He covers issues such as changing markets, customer demands, and other increasing challenges. Mr. Ferdow clearly knows what he is talking about, and the video gives you a good idea of the complexities that companies face with global production.
My Take
Even if we had the technology to teleport products instantly around the world, this would still be a huge topic in international management. Governments will always have an impact on location decisions; skilled labor, the cost of labor, tariffs, etc. are all factors that will not go away any time soon. In my opinion, the most important factors are deciding on a location that is politically stable while offering the greatest benefits, while at the same time realizing what your products value-to-weight ratio will be, and also knowing whether or not you wish to have a centralized or decentralized international corporation.
References
Articles : supply chain : global supply chain management. (n.d.). Retrieved from http://www.epiqtech.com/supply_chain-Global-Management.htm
What are the advantages of global production?. (n.d.). Retrieved from http://www.blurtit.com/q779763.html
Hill, Charles. (2009). International business competing in the global marketplace. New York: McGraw-Hill.
(n.d.). Retrieved from http://www.scribd.com/doc/38453562/Political-Risk-is-a-Type-of-Risk-Faced-by-Investors
(n.d.). Retrieved from http://www.leanmanufacture.net/KPI/valuetoweight.aspx
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Contact Information
To contact the author of “The Top 10 Things You Need to Know About Global Production,” please email Vernon Blackledge Jr at Vernon.Blackledge@selu.edu.
About the Publisher
David C. Wyld (dwyld.kwu@gmail.com) is the Robert Maurin Professor of Management at Southeastern Louisiana University in Hammond, Louisiana. He is a management consultant, researcher/writer, and executive educator. His blog, Wyld About Business, can be viewed at http://wyld-business.blogspot.com/. He also serves as the Director of the Reverse Auction Research Center (http://reverseauctionresearch.com/), a hub of research and news in the expanding world of competitive bidding. Dr. Wyld also maintains compilations of works he has helped his students to turn into editorially-reviewed publications at the following sites:
- Management Concepts (http://toptenmanagement.blogspot.com/)
- Book Reviews (http://wyld-about-books.blogspot.com/) and
- Travel and International Foods (http://wyld-about-food.blogspot.com/).
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