Decisions in International Business Operations
This comprehensive content delves into factors and methods crucial for making informed decisions in international business operations. It covers the importance of location analysis, offshoring considerations, and the factor ranking method. Key topics include cultural considerations, transportation infrastructure, labor costs, and regulatory factors. The discussion emphasizes the significance of thoughtful evaluation and selection of locations for global business activities.
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Presentation Transcript
Factor Ranking Method Location Analysis https://youtu.be/6fbvLZwcrlo Ardavan Asef-Vaziri
Location Decisions Location of Markets Location of Raw Material Transportation Infrastructure, Modes (Truck, Rail, Water) and Costs Energy Availability & Costs Availability of Skilled Labor & Labor Costs Land, Building, and Construction Costs Cultural Considerations Weather, Living Conditions Standards Regulations, Taxes, and Tariffs Offshoring Location Considerations, A. Asef-Vaziri, Systems & Operations Management 2
Questions 1. While selecting a factory location in a foreign country, consideration should be given to A. Culture B. Legal system C. Monetary policies D. Transportation infrastructure E. All answers are correct 2. Multinational organizations can shop from country to country and cut costs through A. Lower wage scales B. Lower indirect labor costs C. Less stringent regulations D. Lower taxes and tariffs E. All answers are correct Offshoring Location Considerations, A. Asef-Vaziri, Systems & Operations Management 3
Factor Rating Method for Location Decisions Popular because a wide variety of factors can be included in the analysis Five steps in the method Develop a list of relevant factors Assign a weight to each factor Normalize the weights to SUM=1 Score each location for each factor based on a consistent scale Calculate the weighted average of total score for each location Make a recommendation based on the highest score Offshoring Location Considerations, A. Asef-Vaziri, Systems & Operations Management 4
Factor Rating Method For Location & Site Evaluation 11. A company wants to build a major warehouse in Europe. Four locations are being considered. The following table shows the important factors to bring into account along with the importance level (weight) of each factor. The attractiveness of each location relative to each factor is indicated on a 0-100 point scale. Find the best location. Factor Transportation costs Operating costs Construction costs Business environment Weight 0.3 0.3 0.3 0.1 Germany 70 60 70 80 68 France 90 70 30 50 62 Belgium 50 60 70 60 60 Netherlands 50 70 70 50 62 =SUMPRODUCT($B$2:$B$5,C2:C5) =SUMPRODUCT($B$2:$B$5,D2:D5) =SUMPRODUCT($B$2:$B$5,E2:E5) =SUMPRODUCT($B$2:$B$5,F2:F5) Germany: 0.3(70)+0.3(60)+0.3(70)+0.1(80) = 21+18+21+8 = 68 France: 0.3(90)+0.3(70)+0.3(30)+0.1(50) = 27+21+9+5 = 62 Belgium: 0.3(50)+0.3(60)+0.3(70)+0.1(60) = 15+18+21+6 =60 Netherland: 0.3(50)+0.3(70)+0.3(70)+0.1(50) = 15+21+21+5 = 62 Offshoring Location Considerations, A. Asef-Vaziri, Systems & Operations Management 5
Factor Rating Method For Location & Site Evaluation 12. In this example summation of the weight is NOT one (100%). We first need to normalize it to 100%. Scores were given in the range of 50 to 100. Factor Transportation Cost Availability & Costs of Skilled Labor 9 Investment Costs Cultural Considerations Living Conditions Standards Regulations, Taxes, and Tariffs Weight Normalized Country 1 Country 2 Country 3 Country 4 5 0.161 72 0.290 78 7 0.226 54 4 0.129 64 3 0.097 84 3 0.097 92 1.000 71.74 =B4/SUM($A$3:$B$9) =SUMPRODUCT($C$4:$C$9,F4:F9) 79 55 73 63 85 52 98 50 61 93 75 99 65 66 63 94 70 63 66.58 72.94 68.87 72.94 Offshoring Location Considerations, A. Asef-Vaziri, Systems & Operations Management 6
Transportation and Production Costs 13. A manufacturer of men s shirts can produce shirts in its Houston plant for $5 per shirt. Chicago is a major market for 100,000 shirts per year. Transportation and storage charges from Houston and Chicago amount to $5 per 100 pounds. Each packaged shirt weighs 1 pound. As an alternative, the company can have the shirts produced in China for $4 per shirt. The raw materials would be shipped from Houston to China at a cost of $10 per 100 pounds. When the shirts are completed, they are to be shipped directly to Chicago at a transportation and storage cost of $16 per 100 pounds. An import duty of $0.5 per shirt is assessed. Where should the shirts be produced and at what costs.. A. Houston; $805,000 B. China; $458,000 C. Houston; $605,000 D. China; $476,000 E. We need to think more- We really need Houston: 5+0.05 = 5.05 (100,000) = 505000 China: 4+0.1+0.16+0.5 = 4.76(100,000) = 476000 Offshoring Location Considerations, A. Asef-Vaziri, Systems & Operations Management 7
