Global_Operations_Management

Global Operations Management by: Trecie Santiago Abstract In the following research, I was asked to consider the scenario following scenario; PPQ Parts has determined that for the company to expand globally over the next several years, its managers would need to be properly trained in multiculturalism and diversity management. It is also important to the company that the managers all be aware of any political and economic concerns that could arise during the expansion, so that they may be as properly equipped to handle these situations if needed. Global Operations Management Over the past 24 to 48 hours, I have given a lot of thought and have also done quite a bit of research on the company’s, PPQ Parts, expansion over the next several years into Germany and Japan. The first things I would like to do is discuss some of the issues, which I consider very important pointers that were laid out for me to assist with, that were brought up as areas for the executives (managers) to be well educated and trained in. This training is very beneficial not only to the company for the managers to be well trained in for its survival in these foreign markets but it is also of great importance to the managers themselves. I say that merely due to the fact that it also very important from the manager’s viewpoint, not only to help them with their survival within the company but also with their basic survival within a foreign country for however long they will be stationed there to work, whether it be in the Germany or Japan location. The first area I am going to cover in dealing with expanding globally is; what are some of the issues that the host foreign country could possibly face as a result of a United States organization’s expansion. This is an area that seems to have always challenged the morals of many businesses that are from the United States and with money being a major factor for the reason many of these businesses “going global” in the first place; it’s not as big of a surprise as many would imagine it would be. I would have thought it would be more difficult especially when salary, one’s profit against the everyday costs of things; like the consumer, employee, government and special interest groups at that time. If within a more developed countries like the United States the moral expectations of the host country would be as stringent as our own. The fact still remains that the moral challenges in third world host countries, even though the moral expectations are more relaxed, you will still find multinational companies being more willing to lower their standards when the situation seems to call for it. When we begin to start thinking about moral challenges that multinational may face we find ourselves stuck thinking about the pressures on these companies to bribe government officials of foreign countries, which are in-charge of running these areas that are in these third world countries. There are even times today that we hear of every now and then, that there is bribery still taking place right here in the United States of America. The fact being that it is just not heard of as often due to the severity of punishment that follows the crime of bribery if caught. Where in these third world countries bribery has almost taken on the shape of normality when it comes to bribing these foreign government officials. To help those who may not understand fully the context of what is exactly meant when I say bribery of a government official, I will explain thoroughly so that you can fully understand. I would define bribery as an act in which a person, such as a government official, agrees to take money to act as they are told to by the party which is paying them, instead of doing the job in which they are officially (paid) employed to do. Another area of moral challenge that these global businesses tend to face is the fact that these big businesses will be found at times where they tend to endorse, influence, or to oppose these foreign governments. You will find whether these big businesses are in the United States or in foreign countries, you will learn that they have an intimate relationship with governments. Businesses are always lobbying for lighter rules and regulations, less taxes, government subsidies, and the ability to access natural resources. These companies depend on government offices like police agencies, court systems, permit offices, and different parts of the transportation networks. Sometime when businesses setup shop outside of the safeguards of the United States, it becomes possible for the interaction with that foreign government to create a base in a foreign country. Most of the time these multinational businesses tend to setup base in , (politically). When this happens they find themselves supporting these governments, this is something that normal socially aware people would not find themselves setting up base in a left wing government country, where they are hostile to any type of business’s interest that is capitalistic. In these types of situations they will find themselves tempted to try to undermine that type of government, no matter to the benefits that the local gain from the government left-wing policies. Even through these two types of extremes do exist, there does happen to be a normal course to follow in doing business within developing countries, this normally calls for the same lobbying efforts that we are use here in the United States. That is when they involve attempting to influence these governments of these third world countries. The worst of all these moral challenges that face international or multinational corporations are the frequent accusations towards these corporations accusing them of exploiting the resources and workers of these third world countries. Let’s use agricultural companies in this example; they often go into a third world country and they tend to use the best land to plant their crops to export and when they do this it begins to diminish the amount of good land available that the locals have to use for their own personal use. Then you have these drug companies and industries that produce these hazardous chemicals that take advantage of these third world countries and their way to relaxed safety regulations, which so many numerous times result in total disaster. When banks and financial institutions move in to these third world countries they do not bring employment opportunities because they do not hire the locals, yet they benefit from the local money. We cannot forget about manufacturing businesses and they end up introducing many areas to poverty by moving into these third world countries and attracting way more people to an area than they can possibly put to work. These businesses also when they employee these third world locals, they tend to pay them way below the amount that they would ever even consider paying an American, and for doing the same exact type of work. These issues alone plainly suggest a double standard of labor value, this being something that would not be tolerated in the slightest in any developed society. It has said to have been argued that, if these global businesses that opened up these companies in these third world countries did pay third world employees at a higher rate than what indigenous businesses could pay, that the best employees would be attracted to these global companies, which would inevitably hurt other local employers in the surrounding area. It has also been said to have been argued by many political parties within these third world countries, that above all these types of surrounding businesses destroying their local culture by introducing our American way of life. In the above research--we discussed issues that dealt with problems that interfered with these foreign governments, like bribery and exploitation, which all raise very important moral and ethical issues. These are the types of issues that bring about questions like, for example, “When in Rome, should we act like the Romans' This brings up the topic of cultural relativism, which mainly brings up whether moral values vary from society to society. Cultural relativism basically states the fact that moral values are completely defined by cultural contexts, and that there is no such universal standards when it comes to a morality that applies to all mankind at all times. Which to me that basically means that as long as I or any other American citizen stays within the United States, where in our cultural environment society dictates the fact that we are to act in a morally fashion or there will be certain consequences if we should decide not to. Multinationals would simply face issues of relativism directly by having one foot in the moral context of the United States culture, and by having another foot in the moral context of some other foreign culture. When you put the thought of how multinationals are mainly driven by profit or their moral values taught in their American culture would never be allowed to be tempted to adopt the lesser costly of the moral principles that some foreign cultural contexts will allow. Is cultural relativism something of truth just merely myth' It is of fact that some cultural practices that are indeed shaped by the cultural environment, take for example how there are countries that have rules that women must cover their heads in public, or strict rules against eating certain types of meats. Now even with certain cultural rules like the examples above there still seems to be a universal foundation of moral principals that are universal such as the obligation that people have to care for one’s elderly family members, rules against stealing, rape, assault, and murder. There has been a lot of debate for over two thousand years by different philosophers and many of these philosophers argue that most principals do appear universal in most societies because without them, that a society would not be able to go on to exist in conditions that allowed such. There are several cultural barriers and diversity issues that are commonly encountered by international/multinational (MNC) and other global organizations. The biggest issues I feel that face these global companies are cross-cultural issues, language differences, legal requirements, and sometimes as discussed earlier in this paper, corruption and bribery. All of the above mentioned factors can cause issues that can lead to costing an organization a lot of money and if not addressed in the proper manner and time can even lead to the business having to close down operations outside of, as well as inside of the United States. If you are wondering how cross-cultural issues can cause global business real problems, sit back and relax, I will be more than happy to explain. Cross-cultural differences can interfere with the way employees within a company work and communicate with one another. A good example would be as follows, you work with a big organization that as opened up shop in an Asian country and employee that happens to be a local. While you give instruction to some lower level employees, you notice that your foreign co-worker is nodding his head from side to side which to you, an American national, would more than likely take this sort of gesture as a negative one by what you have been taught in your culture. Yet, in this Asian culture it could merely just be a slight gesture of understanding. In most situations where conflict occurs, it most noticeably occurs, among employees or business associates due to cultural misunderstanding--where two cultures are unable to understand each other and the fact that they have different traditions and thought processes. One would think this would’ve been the first hurdle an organization would have tackled before even uprooting and going into a foreign country setting new roots within a territory being unfamiliar with its cultural beliefs and traditions. Yet, this is one of the biggest factors that goes totally ignored time after time even in today’s times. In my opinion, if businesses would take the time to train their associates from top to bottom merely to be aware and sensitive to cultural differences then this would be one less, huge factor, that would interfere the work and consumer relationships. One of the main key elements in making sure that global operations are a success is in finding new and creative ways to handle these cultural differences, by combining both cultural perspectives (of both countries) in the most respective way possible. Language is another huge barrier that seems to bring up conflict when an organization expands globally. The mere importance of language comprehension should never go underestimated, as every language has its own particular meanings, there are even times when proper translation does not make for proper understanding. Given this very reality, companies should always contract services of the best translators so other language failures do not cause business failures. In addition to cultural differences and language barriers that face multinational companies abroad, there is corruption that takes place in foreign business practices. The Foreign Corrupt Practices Act was passed in the year of 1977. The FCPA does not allow U.S. companies and citizens, foreign companies that are listed on the US stock exchange, or any person that may be acting while they are in the United States, to make what could be considered a payoff. ‘Payoff’ meaning any attempts, by parties addressed above, that would be considered “offering to pay” directly or indirectly, with money or anything else of value to a person with official statues in a foreign country for business related favors. It has been found that over the past ten years that the FCPA enforcement has needed to be increased due to the following facts: * There are more United States companies now than ever that are engaged in handling business in overseas markets, meaning that about 50% of the revenue of the S&P’s 500 is now also coming from these overseas markets as well. * If there are any material weaknesses found in these internal controls the Sarbanes-Oxley Act of 2002 requires any and all public organizations to disclose the information immediately. * It has also been brought to the public’s attention that most FCPA violations are brought to light voluntarily by the companies that actually commit them. It has been officially noted that, the Indiana company, Lilly and Zimmer Holdings disclosed their FCPA issues because it has been said that when companies step up to the plate as they did the Department of Justice tends to deal with these violations less harshly. It still seems that today some small to mid-sized companies do not fully comprehend these laws. Therefore, many of these business people think of the act as putting only a stop to the passing of suitcases containing monies to certain foreign government leaders in order for the to obtain government contracts. Yes, this is a part of what the FCPA does stop, but there is way more to what it covers that just dealing with bribery. These Indiana companies that have been doing business in these foreign markets that are working with these companies owned and controlled by foreign governments; securing foreign licenses, permits, and certifications; while engaging in the sales and marketing. That is right, this American owned company is aiding in moving foreign products in and out of many countries around the globe, and assisting foreign agents and these business representatives in developing their companies. All these things I have just mentioned above are all FCPA risks. It is time the leaders of these Indiana companies wake up and realize how they are really getting businesses in places such as Moscow or even Beijing. Why, you may find yourself asking, because the FCPA can follow them anywhere, not just within the U.S. The Department of Justice can bring FCPA violations against any United States company no matter where the improper conduct is so-called taking place, even thousands of miles away from the comfort of their corporate headquarters. To be more precise, this even stands for a foreign representative salesperson, acting on behalf of one of these Indiana companies. That is another reason why it is so important that any company or organization that is giving thought to globally expanding their market needs to absolutely make sure all their employees know what is and is not acceptable according to the FCPA. That is one key way for a business to ensure that all their business operations and conduct within their company is 100% acceptable at all times. The leaders of any global organization needs to be able to account for how they obtained the business within each market that they do have a business in, monitor that company’s spending habits that way they are making sure they prevent improper spending of company funds and abuse from occurring. Making sure that all employees, no matter their level, within the corporation are properly trained under the particular culture according to the cultural environment your business is in. If all employees are well trained and understand the cultural values and beliefs, as not to step on any toes inside or outside the company, is a great way to ensure to drive expectations and behaviors in the most positive ways. This is also a positive way to guarantee the success of a company as well. A great example in this very area would to use the country of Russia. Russia is a country where the continued acceptance and exception of gifts still is well looked upon in a favorable way, even today, by their government officials as building a business relationship. However, due to the strict anti-corruption laws that were passed in 2008 and are in place today, and the signing of over 50 international organizations have pledged to have a zero-tolerance level for acceptance of any type of bribery in Russia. This making it very important to communicate upfront where your company stands on its position on anti-corruption with all (foreign) international partners. Therefore, if you were to meet with a Russian business associate and he or she was to say, “We still accept bribes'” Just maybe he or she were less upfront on the idea by saying, “We still accept gifts here for business.” As an American manager or company representative would be ready and need to reply by saying, “My company abides by all rules set for in the FCPA and does not give or accept bribes of gifts of any kind. I understand your position, you understand ours, so let’s move on from here and see if and how we can do business together.” There are political risks that can arise from legal and illegal foreign relation actions of the national government of seller, a buyer, and sometimes even third world countries, especially if third world countries in which cargo may travel through. These are called transfer and convertibility risks and also relate to the seller and buyer’s countries but relate more towards the terms of management of the monies and the availability of foreign monies, which is better known as foreign reserves. Sometimes a country through the acts of it’s central bank will need to ration the foreign monies it may have available to it. They sometimes place controls on the transfer of funds and sometimes they even own their own funds out of their country. This is a situation that is normally referred to as transfer risks. This is when the buyer is willing and able to pay, but certain restrictions have been placed that prevent payment from being able to take place. Now the term convertibility risk is somewhat similar. This is when the buyer is willing and able to pay but with their local monies and the monies may be transferred out of the buyer’s country, but the problem arises when there is no willing market ready to convert it over to the monies in which will benefit the seller in any way. This is when the laws within his may restrict the buyer and his or her monies his or her own country may restrict the buyer, because of currency controls that are that are imposed by the buyer’s own country, normally through the central bank. If the buyer sends the monies to the seller, the seller could then be faced with having to convert it him or herself, this causing the seller a deep cost out of his/her pocket, which put in the place of loosing monies. The seller could also face not being able to convert it at all. Foreign currency exchange under what is referred to as a free-floating environment could end up volatile over time and should never be handled by one’s without experience under any circumstances. Another type of risk is called transfer risk, which can take place when the buyer receives the goods as promised and is ready to as agreed. Yet, the government of the buyer’s country seen its foreign reserves rapidly being and step in and stop payment. The central bank has all rights to stop any movement of funds out of the country without specific approval at anytime and does not need the buyer and seller permission to do so. This program puts a stop to the transfer out of the country in which the buyer’s monies is in as well as blocks the currency from being pulled out by any other country. The buyer is wanting and very willing to make a payment for the goods he/she has received from the seller, but due to government intervention, the payment is being blocked from being made. Above, we discussed political risks to doing business outside of the United States; now we will discuss economic risk. Economic risks can endanger the ability of a seller to get payment for goods or services in a number of ways. This is a type of risk that can be foretold ahead of time but is sometimes completely out of control both the seller and buyer. It is said that the purchase of the transaction insurance is a must in order for the buyer to lesson his or her economic risks. The elements of economic risk include but are not limited to: * Convertibility risk * Foreign exchange risk * Translation risk * Central Bank activities (interest rate fluctuation and availability of funds) * Economic indicator movement (GDP, unemployment, purchasing power, inflating, etc.) There are many types of risks that is associated with international business because of the added pressure caused by foreign governments, geography, and/or culture. A successful leader/manager would never go into business with his eyes closed. It is up to him or her to identify all possible risks, assessing all potential profits mitigation totals are in place. There are several types of risks that are associated with that are associated with any kind of international transactions, political, economic, and commercial risk are all capable of rendering a seller or buyer incapable of conducting business (getting p aid or receiving this shipment of goods). Before one goes into any type of business for of doing or handling international business, they must fully understand the complex intersections of the various types of risks. The simplest to differentiate commercial and country-risk is listed below: * Country Risk - Political Risk + Economic Risks * Commercial Risks = Business Transaction Risk As more trade barriers recede and companies from developed parts of the world pursue more market opportunities in less developed (third world) counties around the globe, the need for competency and effectiveness in international management holds many important skills that will almost ensure global success for most companies. The main issues that are involved in international management span the whole idea of those concerning management in general, but there are several areas of special interest, including but not limited to: * international finance and currency matter * cross-cultural communication and understanding (including international marketing implications) * foreign legal requirements and accounting practices * global strategy * international competition For a company thinking about expanding globally to ignore issues in an international business is to open their doors to risks like, inappropriate and ineffective marketing approaches, poor labor-management relations, adverse currency fluctuations, and other problems. The fact being that companies that are able to successfully manage these types of issues have a much greater potential to expand their marketing reach, increase market share, improve efficiency and profitably, decrease costs, and enjoy other competitive advantages. I feel that a company likes PPQ Parts being a prospective international business, needing to choose a model appropriate to their level of resources, market potential, and experience operating within the international sphere. There are various types of international business models that include export/import businesses, independent agents, licensing and franchising agreements, direct investment in established foreign companies, joint ventures, and multinational corporations (MNC). The differences in these options are very subtle in nature, in fact. The importance for multinational company having an international manager is becoming more and more important in the business world, and their success can directly affect a company seeking to compete with the global market. As a result, business leaders are placing increased importance on the development of managers with expertise in international management. The international manager that PPQ Parts hires will need to demonstrate a higher level of skill than those exhibited by the traditional manager of the past. It would be suggested that the international manager be multilingual, sensitive to cultural differences, and knowledgeable about current global management theory, philosophy, psychology, and their practical applications. Acquiring the skills needed to become a successful international manager is a demanding process--especially since the global market will continue to expand for the foreseeable future. There are three approaches to international management: ethnocentric, polycentric, and geocentric. Each of the three has advantages and disadvantages. None of these theories can be successful, however, unless managers understand completely the nuances involved in their applications. The ethnocentric approach is one in which management use the same style and practices that work in their own headquarters or home country. This is an approach that may leave managers open to some devastating mistakes, due to may work within the United States, for example, this may not work within Japan or Germany. There are many cases in which companies made grievous errors when they attempted to transfer their management styles to foreign countries. Take the example of Procter & Gamble Co. lost $25 million in Japan between 1973 and 1986 because their managers would not listen to Japanese advisors. The company ran an advertisement for Camay soap in which a Japanese man met a Japanese woman for the very first time and compared her skin to that of a porcelain. That would never happen in Japan and that is exactly what a Japanese advertising adviser told Procter & Gamble’s managers but of course, it was ignored. Procter & Gamble’s managers learned a very important lesson at a very high price to the company. Let us move on to polycentric management theory, which is an approach where management staffs its workforce in the foreign country, like in Japan and/or Germany with as many local people has possible. This theory is very simple, local people know best when it comes to their country’s culture, language, and work ethics. Locals do are the ideal candidates for management. However, in countries that do not have well-developed economies, this would not always be the best approach due to the local workers may not always have the necessary business insight or management skills. The third style of international managing is the geocentric approach. This is the belief that the best persons, no matter the country origin, should always be placed in management positions. This is the belief that maintains that all business problems are the same regardless of where on the globe the problem takes place. Therefore, the belief being that a competent manager who is able to apply logic and common sense to resolve problems will be successful; specific knowledge not being necessary. It is said this being the most difficult of the three approaches to apply, since managers are trained to be able to understand the local and global ramifications of the business. The one company in which I can think of that can provide evidence of success from the use of the geocentric approach would be the Boeing Corporation. When sales of its 737 plane dropped dramatically in the early 1970’s, Boeing’s senior management asked an engineer group to bolster the sales of the plane. The management team stated that if sales did not begin to rise that the production of the plane would be discontinued. The engineer group seized the opportunity. Their first step in this approach was to first examine the foreign markets for the plane. This helped them to recognize what attracted buyers in the United States may not always attract the foreign buyer. That is why their second step was to visit different countries around the globe to assist them in determining which characteristics might be useful to incorporate into the redesigning of the 737. They found quite a few differences in flight operations, for example many foreign airports, especially those in developing countries, had shorter runways than those in the United States. Moreover, it was also found that many were constructed of softer materials than concretes, the standard material used in the United States. As a result of their study, the group of engineers redesigned the plane’s wings, which allowed for shorter landings on asphalt runways and altered the plane’s engine so that takeoffs would be much quicker. They also, finally, they designed new landing gears and switched to low-pressure tires. Not long after implementing of these changes took place, the sales for the 737 rose dramatically, and so did the sales of other Boing’s other models. In fact, the 737 eventually became the largest selling commercial jet in aviation history. As you can plainly tell from this story of success, the engineer’s success came from their ability to expand their minds globally and by assessing the business environments in other parts of the world. It is also extremely important for PPQ Parts to have managers that are involved in the international business and for them to be able to recognize the opportunities available in different countries. They must know enough before hand to recognize the opportunities that are available in different countries. For example, there are three types of countries with which there are potential business opportunities: developed, less developed, and newly industrialized. Once managers have assessed which group a certain country belongs in, they must then analyzed the country’s infrastructure, too. Developed countries, such as Canada, Italy, Japan, Germany, the United States, and the United Kingdom, are those that are at the high level economic or industrial development. The less developed countries, frequently called third world countries, are relatively poor nations with low per capita income and little industry. There are many of these countries that have the potential to become trade partners, s international managers definitely cannot overlook these business opportunities when they are analyzing them. Finally, there are counties that are labeled as newly industrialized, such as Twain, South Korea, and Vietnam. These are the countries that are quickly becoming major exporters of manufactured goods. Hyundai would be a great company to use as evidence of that, more and more countries are taking their place in the industrialized world--and increasing the need for qualified managers who can oversee the business relations involved. Managers must be trained in all facets of international business that are not normally the concern of many domestic managers. International managers need to know all there is to know about another countries’ infrastructures, business practices, as well as, foreign trade dynamics. They definitely must be knowledgeable about international exchange rates and the legal- political and sociocultural traits of other countries. References Heizer, J. and Render, R., (2010) Operations Management. Flexible Version. (10th ed.) http://www.referenceforbusiness.com/encyclopedia/Int-Jun/ http://elibrary.worldbank.org http://mhhe.com/business/marketing/bearden/about_the_text/pdfs/chap3.pdf http://www.global-integration.com/what_we_do/cross_cultural_success.html http://www.harzing.com/download/langbarrier2.pdf http://www.apa.org/pi/oema/resources/policy/multicultural-guidelines.aspx