Globalization



Course Objective 7, Competency AReference Textbook Chapter 16, Critical Thinking and Discussion Questions: Question 1 Question 1: A firm based in Washington state wants to export a shipload of finished lumber to the Philippines. The would-be importer cannot get sufficient credit from domestic sources to pay for shipment but insists that the finished lumber can quickly be resold in the Philippines for a profit. Outline the steps that the exporter should take to effect the export of this shipment to the Philippines.Suggested ResponseThe steps are as follows.(1) The Philippine importer places an order with the U.S. exporter and asks the exporter if it would be willing to ship under a letter of credit.(2) The U.S. exporter agrees to ship under a letter of credit and specifies relevant information, such as prices and delivery terms.(3) The Philippine importer applies to the Bank of Manila (or some other international bank) for a letter of credit to be issued in favor of the U.S. exporter for the merchandise the importer wishes to buy.(4) The Bank of Manila issues a letter of credit in the Philippine importer's favor and sends it to the U.S. exporter's bank, the Bank of Seattle.(5) The Bank of Seattle advises the U.S. exporter of the opening of a letter of credit in his favor.(6) The U.S. exporter ships the goods to the Philippine importer on a common carrier. An official of the carrier gives the U.S. exporter a bill of lading.(7) The U.S. exporter presents a 90-day time draft to the Bank of Seattle, drawn on the Bank of Manila in accordance with the Bank of Manila's letter of credit and accompanied by the bill of lading. The U.S. exporter endorses the bill of lading such that the title to the goods goes with the holder of the document—which at this point in the transaction is the Bank of Seattle. (8) The Bank of Seattle presents the draft and documents to the Bank of Manila. The Bank of Manila accepts the draft, taking possession of the documents and promising to pay the now-accepted draft in 90 days.(9) The Bank of Manila returns the accepted draft to the Bank of Seattle.(10) The Bank of Seattle tells the U.S. exporter that it has the accepted bank draft, which is payable in 90 days. (11) The exporter sells the draft to the Bank of Seattle for a discount from the face value and receives the discounted cash value of the draft in return.(12) The Bank of Manila notifies the Philippine importer of the arrival of the documents. The importer agrees to pay the Bank of Manila in 90 days. The Bank of Manila releases the documents so that the Philippine importer can take possession of the shipment.(13) In 90 days, the Bank of Manila receives the importer's payment so that it has funds to pay the maturing draft.(14) In 90 days, the holder of the matured acceptance, in this case the Bank of Seattle, presents it to the Bank of Manila for payment. The Bank of Manila pays. (If the exporter feels confident in and can completely trust the purchaser in the Philippines, then a much simpler procedure than this could be followed.)Course Objective 7, Competency BReference Textbook Chapter 17, Closing Case: Making the Amazon Kindle, Questions 1, 2, and 3SummaryThe closing case describes how Amazon decided how and where to manufacture its Kindle e-book reader. Amazon needed to ensure that the price of the Kindle was low enough to compete with products from Apple and Barnes & Noble. In addition, it needed to ensure that the Kindle would have the functionality and reliability that buyers were looking for. To accomplish these goals, Amazon designed the product in the United States but then outsourced most key components to companies in Taiwan, South Korea, and China. Discussion of the case can revolve around the following questions.Question 1: What criteria drove Amazon’s decision of where to produce the different components that go into the Kindle? Were these the right criteria?Guiding Amazon’s decision was an understanding that if the Kindle was going to be successful, it had to have the magic combination of low cost, high functionality and reliability, and design elegance. These were the right criteria, which became more important as other competitors emerged.Question 2: Some have argued that the fact that only $40–$50 of the value associated with manufacturing the Kindle goes to U.S. companies is a sign of the decline of American competitiveness. Do you agree with this assessment?Students’ opinions might vary on this question. However, if some of the components that were manufactured overseas had been produced in the United States, Amazon would have had to raise the price of the Kindle, which could have cost it a large portion of sales. Some of the components made overseas could not have been made in the United States because U.S. firms did not have the technology or expertise to make them.Question 3: If Amazon had decided to design and manufacture the Kindle and all of its components in the United States, what do you think the consequences would have been for Amazon?Students’ answers will vary. If the Kindle had been made in the United States, Amazon would have had to triple the price it charged for the e-book reader, which would have cost the company millions (due to lack of profit). Also, increasing pricing for the Kindle would have taken it out of the marketplace—consumers would turn to one or more of Kindle’s competitors—based on price.Another Perspective: Consider to extend this case.Course Objective 7, Competency CReflective Essay: Selection and Evaluation of a Global SupplierDevelop a two- to three-page paper outlining the steps and selection criteria, with a minimum of five criteria, with appropriate rating scales shown in a preferential matrix for the selection of a global supplier. Also include in your paper the metrics used for determining the performance of the selected global supplier. In addition, you should provide supporting data to illustrate how the economy of your selected country has changed. Your paper should include supporting data, such as tables, charts, or graphs, to support your research. Suggested ResponseStudent should describe the formal steps (flowchart) in the supplier selection process and include a preferential matrix with appropriate criteria and weights. Examples of criteria may include business experience, price, quality, warranty, location, and technology. A system for measuring supplier performance may include on-time delivery, quality and defects, and price and after-sales support. Supporting data in the form of tables, charts, and graphs should be included to show trends relating to the healthcare situation of the country selected.Course Objective 7, Competency DReference Textbook Chapter 17, Critical Thinking and Discussion Questions, Questions 4 and 5Question 4: Reread the Management Focus on Philips in China and then answer the following questions.a. What are the major benefits to Philips of shifting so much of its global production to China?China is an attractive production location for Philips for several reasons. Perhaps the most important factor is the country’s cheap wages. In addition, the Chinese workforce is well educated, the economy is strong, and many of the company’s suppliers are doing business there. Students should recognize that using China as a global supply base from which to serve the world offers several advantages to Philips. By having a single production location, the company can capitalize on costs savings that come from economies of scale as well as the low wages in China.b. What are the risks associated with a heavy concentration of manufacturing assets in China?Most students will recognize that Philips is taking a risk by concentrating its manufacturing in China. If economic, political, or other types of problems arise in the country, Philips could be in serious trouble, because it will not have alternate locations to fill production gaps.c. What strategies might Philips adopt to maximize the benefits and mitigate the risks associated with moving so much product? Some students might recommend that Philips consider forming joint ventures with local firms to gain some protection against the threat of nationalization or other adverse moves from a foreign government. Other students may suggest that Philips maintain production facilities in more than one country to offset potential problems in another.Question 5: Explain how an efficient logistics function can help an international business to compete more effectively in the global marketplace.Given the complexity involved in coordination of material and product flows in a multinational enterprise (purchases, currency exchange, inbound and outbound transportation, production, inventory, communication, expediting, tariffs and duties), an efficient logistics function can help to assure that these flows take place in the most efficient manner possible. A related advantage is that by having a logistics function, a firm may obtain improved information about the costs of different transport alternatives and choose to reconfigure some of its flows to better take advantage of these costs. By being better able to utilize just-in-time techniques, the cost of production can be lowered while the quality is increased. The logistics function can also help an international business develop information technology systems that allow it to better track the global supply chain.Course Objective 7, Competency EReference Textbook Chapter 17, Critical Thinking and Discussion Questions: Question 3A firm must decide whether to make a component part in-house or to contract it out to an independent supplier. Manufacturing the part requires a nonrecoverable investment in specialized assets. The most efficient suppliers are located in countries with currencies that many foreign exchange analysts expect to appreciate substantially over the next decade. What are the pros and cons of (a) manufacturing the component in-house and (b) outsourcing manufacture to an independent supplier? Which option would you recommend? Why?Suggested ResponseManufacturing in-house would reduce the risk of currency appreciation and rising costs from independent suppliers. Specialized asset investment would make the firm dependent on specific suppliers; however, technological know-how would be protected, and improved scheduling would be available. Outsourcing would be beneficial if the product using the component fails in the market, because the supplier will bear the cost of the nonrecoverable investment, and flexibility in case a better component can be designed or bought would be preserved. Outsourcing would also lower organizational and coordination costs. Based on what we know, manufacturing in-house may be slightly preferred, but other information could tip the decision the other way. ................
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