Part-6(A): International Business Operations

Discussion Questions:

1.      How do you explain the use of countertrade? Under what scenarios might its use increase further by 2015? Under what scenarios might its use decline? How might a company make strategic use of countertrade schemes as a marketing weapon to generate export revenues? What are the risks associated with pursuing such a strategy?

It is true that trading between nations has been happening since a very long time. In ancient time nations traded silk, spices, cloth and animals of all kinds. Today nation trade food items, defense equipment, metals, electronics etc. when we observe that nature of the trade, it seems that the products might have changed but the basic concept is still the same as the underlining need which brings together two nations in a trade relationship still exists. Simply speaking, one such method of trading between nations is called counter trade. Counter trade can be defined as an import / export relationship between nations or large companies in which good and/or services are exchanged for goods and services without using money. In some cases monetary evaluations are made for accounting purposes.

The use of Countertrade might increase when foreign exchange markets are limited or importers don’t have access to foreign exchange (low reserves) when they need to fund their purchases. In addition to that,   currency crises and monetary instability are considered as two major conditions that lead to countertrade. As long as countries lack hard currencies and foreign exchange reserves, counter trade is likely to grow. On the contrary, when the trade barriers lead to decrease world trade and international monetary systems of many countries improve significantly then countertrades are likely to decrease.

Countertrade is nothing more than an alternative means of operating an international sale when conventional means of payment are not possible, risky or costly, or nonexistent.  Some countries, mostly developing countries are likely to prefer having countertrade rather than others. Having said this, however, if a company is willing to enter a countertrade agreement, it may grab an export opportunity to a competitor that is willing to make a countertrade agreement. Companies those are willing to entertain countertrade as a means of financing, will have an advantage over those firms that prefer traditional forms of financing.  In some cases, it may be risky in the sense that some companies engaging in countertrade must be willing to invest in an in-house trading department dedicated to arranging and managing countertrade deals, and must be aware of the quality of the products received in countertrade deals.   

2. A 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 non-recoverable 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, (b) outsourcing manufacturing to an independent supplier? Which option would you recommend and why?

            In this global world, a firm has more choices than ever before for selecting and operating its business activities all over the world.  A firm, for instance, has an option to make a component part in-house or to outsource form an independent supplier. However, choosing right option is quite difficult task in international business because there are many factors to be considered before making a final decision. For this, we have to analyze the pros and cons of each option in detail so that we can say that one is better than another.

Let’s talk about the advantages of making a component part in-house. While it is true that manufacturing the part requires a non-recoverable investment in specialized assets, there are some potential advantages such as lowering costs, facilitating investment in highly specialized assets, protecting proprietary technology and facilitating the scheduling of adjacent processes. On the other hand, buying component parts from independent suppliers is also beneficial to international firm such as greater flexibility for firm, reducing the firm’s cost structure, and helping firm to capture orders from international customers.

            Having said both pros and cons, it may not easy to say which is better to recommend because it depends on nature of products or services or product life cycle or country-specific factors. For example, manufacturing components in-house are better to choose when there are highly specialized assets involved, vertical integration is necessary for protecting proprietary technology and the firm is more efficient than external suppliers at doing a particular activity. On the other hand, out-sourcing would be beneficial if the product using the component fails in the market because the supplier will bear the cost of the non-recoverable investment, and flexibility in case a better component can be designed or bought would be preserved. It also lowers organizational and coordination costs. Based on above information we can say that manufacturing in house may be slightly preferred rather than buying from an independent supplier, but other information could tip the decision the other way.

3. Case Study On “Exporting and Growth for Small Business”

The main benefits of exporting for companies like Morgan and Wadia

It is certainly true that the main benefits of exporting for companies like Morgan and Wadia are that they could sell their products at profitable prices. In case of Morgan the cars are expensive and the market is niche in which their products/ cars are sold only in the UK. While it is necessity for Morgan to export into other countries for doing better, the company sells 70 percent of its output to the US and Europe. In the same way, in case of Wadia the company would not be able to sell its entire output of CD players in the USA so that it is necessary for Wadia to sell 70 to 80 percent of its output abroad. Having said these, therefore, the benefits for Morgan and Wadia are many such as higher sales for their output, high prices for their premium products and access to larger number of customers.

The outlook for a company like Morgan Motors if it neither exported nor imported

It seems that there would not be good sign for a company like Morgan Motors if it neither exported nor imported. In other words, it could earn less revenue and less profit opportunity without exporting or importing. In fact, 70% of Morgan Motors’ total revenue would be generating from exporting their products abroad.  Similarly, it could be difficult to get raw material from within the same country because it exported its most of raw materials from overseas. In a nutshell, the outlook of Morgan Motors without doing importing or exporting does not show a better sign for the company due to above mentioned reasons.

The impediments to exporting success and steps to be followed to improve their profitability of succeeding in export markets

Getting successful in exporting is not easy task because there are lots of challenges and risks involved that are likely to reduce the chance of exporting success. Some of the major impediments to exporting are tariff barriers, complexity in conducting market research, managing finance, absorbing foreign exchange risks and so on.

There are certain steps to be followed while improving profitability of getting successful in export markets. First, it has to utilize exporting assistant or export management company (EMC) that works as an export specialist who act as the export marketing department or international department for their clients firms.

The legitimate for local and national government agencies to use taxpayer money to help small companies export

In my view, it is legitimate for local and national government agencies to use taxpayers’ money to help small companies export. There are many reasons for this. Firstly, it helps to improve the balance of trade position of a country. Secondly, it provides access to foreign exchange resources required for importing essential things. In addition, the exports help the county sell its excess production capacity and enhance the potential for global expansion by local companies. Exports help the country to stabilize fluctuations in market demand. Not only that much, every national and local government is interested that its businesses gain a global market share. It brings in a positive flow foreign exchange. It helps exploit indigenous technology to its fullest and helps increase sales and profits of the exporting firms. It is for this host of reasons that local and national government agencies use taxpayers' money to helps small companies export and make them competitive in the global market.

Case Study: “Building the Boeing 787” (p. 564)

The purpose of this case study is to examine about different challenges and benefits of outsourcing. In the case, Boeing is one of the world largest manufacturers of aircrafts. In 2004-05, company announced the introduction of aircraft, which is fuel efficient and light in weight. There was lot of new Building the Boeing 787 2 modern facilities were added in the aircraft for the passenger and crew members. In the mean time, the management of Boeing opted to outsource most of the parts from other companies. The management was in opinion that, in this way company will be able to get the best quality product in less time and less money. Furthermore, this move will help the company to get orders from foreign countries. But in 2007-08 company went through some supply chain problems, many of its suppliers did not able to deliver the parts of aircraft on time so that company had to lose quality standards and money as a penalty. From these overall activities, the company learned that closer management oversight and coordination are needed to overcome such problems. In this paper, I would like to discuss about Boeing 787 and its outsourcing activities, and strive to come up with a reasonable conclusion.

The benefits and potential risks to Boeing from Outsourcing its activities to foreign suppliers

Like every action has its own benefits and potential risks, Boeing also has its own benefits and potential risks from its foreign suppliers. First, it will help to mitigate the risks by sharing its part of activities to suppliers. Second, it greatly helps to reduce the costs of production or products because of efficient use of resources. Third, it would able to reduce the time taken for the product development (from 6 years to 4 years). Last but not the least; Boeing would increase sales of aircrafts in the foreign countries where outsourcing work done.

On the other hand, there are many potential risks that are very harmful for Boeing. Such potential risks include a higher chance of lower revenue due to penalty or fees caused to late delivery, a conflict of delivery schedules (some outsource manufacturers and/or partners may not meet Boeings due dates), and quality standard may not be achieved as the need of company’s requirements. In addition to these, Boeing found out that their outsourced partners might further outsource critical design work to other companies over which Boeing had no control because other companies reported to outsourcing partners and not Boeing.

From above discussion, it has been concluded that the benefits of outsourcing outweigh the risks associated with it. However, Boeing has to manage some of the challenges to gain such benefits. For this, it must provide closer management oversight and coordination as per the need of work standard in every country or outsourcing company. Thus, offering some tasks to foreign suppliers when managed properly could have more benefits than its risks for gaining a competitive advantage for Boeing 787.

The well-publicized issues with regard to management, their causes and solutions

It is true that there are many causes of these problems. First, delay of delivery was the main cause that derived these problems. Second, Outsourcing partners did not follow the require level of quality standards. In the same way, last but not the least, the company did too much outsourcing but it did not manage the closer management oversight and cordination.

To reslove these problems, the company should follow the just-in-time management for the delivery of its parts and components for making finished products. In addition to that, outsourcing partners should be able to maintain the required level of quality standard. Similarly, the company should foucs on closer management oversight and coordination that are required to manage the proper networking among the outsourcing partners. Lastly, I also advice the company to manage outsourcing logistics functions more systematically to run the smooth operation.

Boeing’s exporting American jobs to overseas, its criticism and company respond to it

Some critics strongly believe that the Boeing act of exporting its jobs to other countries from America is not fair and they criticize this activity of Boeing greatly. However, other people, including myself, believe that it is fair to do so because when the company outsources American jobs to overseas then the prices of these particular products are likely to reduce dramatically so that more job opportunities may occur as business transactions take place in a large volume.

In the same way, the company might respond to this activity as a fair way of doing business. The main purpose of the company is to make the large profit through massive cost reduction and excess sales of productions. In addition, it is inevitably true that company should convince its criticizers by letting them to know the other benefits that may take place when proper management and coordination of outsourcing logistics function occur in the supply chain network.

Summary and Conclusions

Hence, having discussed all the above, while it is not easy task to deploy the outsourcing activities among many countries, when this is managed with proper coordination and closer management insight then all customers, the company and both host and home countries are likely to get more benefits than ever before. Therefore, I believe that outsourcing American jobs to overseas are not bad at all and when supply chain management fucntions are managed with proper care and srong network, all parties are likely to enjoy the benefits so that the company can achive a competitibe advanatge over its rivals.

References

Hill, C. W. (2011). International Business: Competing In the Global Marketplace. New York: McGraw- Hill .

(n.d.) Retrieved October 30, 2015 fromhttp://www.investopedia.com/articles/basics/11/biggest-risks-international-investing.asp