International Operations and Management
International Operations and Management
Hedley (2016) revealed that managing international operations is an increasing concern for global companies (Harrison, 2011, p.3). Some of the reasons given by upper management are to remain competitive, as a growth opportunity, and to improve profits (Harrison, 2011, p.3). Global companies revealed that the main difficulty is choosing what entry strategy to use, which includes licensing, exporting, joint venture or direct investment (Foley, 1999, p.31). The report will examine the opportunities and continuing challenges of an international operation for a global automotive company under the entry strategies of joint venture and direct investment.
International Operation Challenges and Opportunities
Joint ventures is perceived by Zheng and Larimo (2014, p.106) to be one of the most highly used entry strategies by international companies. The reason for its choice is that opportunities and economic success for international operations are considered to be usually uncertain (Zheng and Larimo, 2014, p.106). This is because there are many factors that upper management needs to consider in order to achieve foreign operation success while avoiding failure (Taylor and Taylor, 2008, p.480). Contractor et al. (2011, p.36) defines joint ventures as an alliance between two or more companies with the objective of sharing quantitative and qualitative rewards, risks, and costs while exploiting each other’s complementary resources, capacities, and competencies (Oliver, Holweg, and Luo, 2009, p.85).
However, some global companies chose to use totally owned facilities (Pride, Hughes, and Kapoor, 2011, p.84) or direct investment as an entry strategy especially when the government have developed favourable investment incentives (Zhong, 2016). These countries are then perceived to have an open economy (Boscheck et al., 2008, p.261). The advantage of direct investment is better controls over the international operations since it is operating as a foreign subsidiary (Pride, Hughes, and Kapoor, 2011, p.84). The reason for choosing the direct investment strategy by a higher number of global automotive companies is that intellectual property rights are better protected even when it shares manufacturing processes and technology with its suppliers (Oliver, Holweg, and Luo, 2009, p.85). This can be done through two ways, which are to build their own facilities or to wholly purchase an existing firm (Pride, Hughes, and Kapoor, 2011, p.84).
The use of joint ventures and direct investments as entry strategies have their own advantages and disadvantages but there is no perceived measurement for their performance success (Zheng and Larimo, 2014, p.107). The qualitative factors for joint venture success are a mutual commitment by the contributing companies, a cooperative culture, technology sharing and trust, and an objective of generating greater profits (Zheng and Larimo, 2014, p.109). But Zhang, Jing, and Fu (2008) revealed that a quantitative factor in the form of a beneficial equity structure contributes to joint venture success especially when the domestic partner has a higher ownership percentage. Therefore Zhang, Jing, and Fu (2008) assumed that the primary reason for joint venture success is through the greater effort of the domestic partner.
The quantitative advantage of using direct investment is that it minimizes financial problems for the domestic market since it acquires an influx of investment capital from the foreign company (Bagheri and Nanehkaran, 2013, p.127) as well as technology transfers (Oliver, Holweg and Luo, 2009, p.90). The disadvantage of direct investment is that foreign companies are perceived to have a greater control over the domestic market resulting in an increased dependence on the international economy and their currency (Bagheri and Nanehkaran, 2013, p.127).
Supply Chain Sourcing and Reliance
Pires (1998, p.221) believes that companies expand into the international market since it requires operations outsourcing, gaining competitive advantage in the local market, control of production costs, and accelerating the product development. But the main problem in an expanding international operation is the acquisition and supply of product components especially in the automotive business (Pires, 1998, p.221). The reason is that domestic suppliers generally do not have the technological knowledge required by the buying companies (Wagner and Bode, 2014, p.65). This is because specialized scientific and technological knowledge are primarily shared between the buying companies and their suppliers (Contractor et al., 2011, p.127).
Product and process innovations are usually acquired when the buying companies shares their information and technologies to their suppliers (Corsten, Gruen and Peyinghaus, 2011, p.549) resulting to a complementary advantage. Corsten, Gruen and Peyinghaus (2011, p.549) revealed that the reason for the information and technology exchange is primarily due to the level of trust between the buying companies and their suppliers (Corsten, Gruen and Peyinghaus, 2011, p.549). The level of trust between the buying company and their suppliers can result to an improvement or worsening of competitive advantage (Corsten, Gruen, and Peyinghaus, 2011, p.549).
In some unusual cases, the automotive company may rely on their suppliers for product and process innovations (Wagner and Bode, 2014, p.65). The reason for this is that primary suppliers are tapping into the technology, skills, and innovations developed by the second-tier manufacturers to keep up with the buying company’s demands (Pacheco, 2015). Some of the more important product and process innovations developed by automotive suppliers are the creation of a lightweight material and a more efficient component (Wagner and Bode, 2014, p.65). Wagner and Bode (2014, p.65) revealed that the most advanced technological innovations produced by the suppliers are reserved for buying companies that they have a better working relationship with.
The primary motive for this push approach is that suppliers will only share the technological innovations with buying companies that they believe will offer them better future benefits (Wagner and Bode, 2014, p.65). However, the problem with the push approach is that offering the newer technological innovations can endanger the cumulative future benefit of the existing products (Wagner and Bode, 2014, p.66). In order to protect the future benefits of the existing product, the supplier normally offers the advanced technological innovation to a selected few (Wagner and Bode, 2014, p.66).
Product and Process Innovation
Wagner and Bode (2014, p.66) revealed that product and process innovation are actually two different aspects of production. The reason for this is that each aspect can result to a different perception for the supplier and this reflects on their sharing behaviour (Wagner and Bode, 2014, p.66). Process innovation is defined as the development of new processes based on new technologies in order to develop a more cost effective and efficient product or service for its customers (Wagner and Bode, 2014, p.66). Product innovation on the other hand is defined as the development of new products or technologies based on the customer requirements as well as the existing technology (Wagner and Bode, 2014, p.66). The main difference therefore is that product innovation is designed to develop a better product while process innovation improves the efficiency of the manufacturing processes or enhances the effectiveness of quality control (Wagner and Bode, 2014, p.66).
The problem is that Therja and Kaushik (2014) believe that there are various gap areas with regards to product or process innovations. The reason for this is that product or process innovations are given by the automotive company to a limited number of suppliers. This means that sustainable growth is primarily limited to the few suppliers that were given the product or process innovation (Oliver, Holweg and Luo, 2009, p.114). This implies that access to local resources are limited to the local supplier while access to international sources are limited to the automotive company especially when there is no exchange of technological innovations (Harrison, 2011, p.5). The resulting effect is that there are no mutual competitive advantages for the automotive company and their suppliers.
Lean Management
Ettlie (cited in Wagner and Bode, 2014, p.66) believe that product and process innovation must be integrated in the company operations since it results to additional opportunities with regards to operational performance. This was seen in the Supplier Cost Reduction Effort implemented by Chrysler (Wagner and Bode, 2014, p.66) where both the automotive company and the supplier benefited from the lower costs and a more efficient production process. Therja and Kaushik (2014) believe that corporate competitiveness is enhanced when the planning, processes, and practices are streamlined through suggestions from the automotive company as well as its suppliers.
One method used is the Value Stream Mapping (VSM) where value-added costs and redundancies are eliminated (Thareja and Kaushik (2014) for the purpose of making the manufacturing process leaner since it considers the additional cost of redundant operations or processes (Taylor and Taylor, 2008, p.480). An alternative streamlining management tool implemented by Ford is the six-sigma, which uncovers cost savings in manufacturing processes while improving the supply network visibility (Penske, 2015, p.1). The success of six-sigma is that it changes the business process in increments, which is more easily adopted by the employees since it is perceived to be less threatening (Pearlson and Saunders, 2010, p.155).
Delays and Technology Adaption
However, despite the better operations management and controls there are still inherent complications within the company, which are primarily due to production delays (Tesla, 2016, p.14). The reason for this is that suppliers may not have the capacity to produce the components required by the buying company or through delays from international suppliers (Tesla, 2016, p.14). One of the reasons given for the delay is that the components must reach the company’s quality production standards despite the number of product innovations (Tesla, 2016, p.14).
Internationalize Recommendations
There are three recommendations to improve the potential growth of an automotive company, which are to make use of joint ventures, direct investment, and a market analysis. Internationally established automobile companies prefer to make use of the direct investment strategy for the purpose of protecting their intellectual property rights (Oliver, Holweg, and Luo, 2009, p.85). This is because companies can take advantage of international alliances especially with regards to their intellectual property rights (Stewart and Maughn, 2011, p.1). The problem is that most of these joint ventures are primarily limited in scope, duration and purpose (Stewart and Maughn, 2011, p.1) but its advantage is that complementary competencies, resources and capacities are shared (Oliver, Holweg, and Luo, 2009, p.85). This means that the domestic partner have only a limited access to process or product innovations and that these may not be enough to attract the attention of more discriminating consumers resulting to a limited company growth.
An alternative strategy is to take over an existing firm that had already improved its technological innovations based on a previous joint venture. Unfortunately, these direct investments require not only management strength, experience, and existing infrastructure but a significant amount of capital as well (Stewart and Maughn, 2011, p.1). This is further worsened by the fact that consumer preferences will change as well the political and economic regulations and policies of each market (Ford, 2016, p.16). This means that automotive companies need to do product innovations in order to keep up with the requirements for vehicle emissions, safety, environment standards, and fuel economy (Ford, 2016, p.16).
A market analysis must be done in order to improve the purchasing behaviour of target consumers to maximize profits. This is done by examining the competitive environment, inflation, GDP growth rate, consumer expenditure, social status, and attitudes of its market (Harrison, 2011, p.9). The market dynamics of the target market (Kalyanaram and Gurumurthy, 1998) are then used to forecast demand and supply requirements of the automotive company to maximize capacity but minimize excess production.
Conclusion
The examination of the current and previous entry strategies used by companies in their international markets is perceived to vary depending on each country. The explanation for this is that the success of a joint venture in one country cannot be replicated in another. The reason is that each country has its own policies, standards, and culture, which means that each automotive company must adapt to the current economic and political situation along with potential future changes.
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