ib-3(global business operations)
TRANSCRIPT
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GLOBAL BUSINESS
Operations
The Global Shift Strategy
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Current Business Landscape &Changing Demand
1. Economic Power ShiftingThe focus of economic power is shifting to Asia and BRIC( brazil Russia Indiachina) in terms of investment and output. The question is how independent theBRIC markets will be in driving global growth and what the role of the Triadwill be.
2. Shifting Market LandscapeWhile developed countries will remain the largest consumer and industrialmarkets, the rise of a massive global middle class in rapidly developingeconomies (RDEs) will shift the demand landscape radically. The competitionfor these markets will be intense, but which competitors will succeed?
3. Changing Geopolitical and Security LandscapeGlobalization is driving new dimensions of power beyond military mightincluding economics, resources and technology. However, the new global
landscape is not stable: risks and nationalism are rising.4. Fracturing Global Social Fabric
Globally, the population is becoming older, more urban, more Asian and moremobile. At the same time, traditional social structures are fragmenting, shiftingnotions of personal identity. With demands for greater inclusion by previouslyisolated segments of society, dividesand associated tensionsare increasing.
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Current Business Landscape &Changing Demand: contd
5. Growing Stakeholder Demands on BusinessMore stakeholderspublic and privateare actively demanding transparencyand accountability from business. Corporations are seen as part of societysproblems. Can they also become critical contributors to required solutions?
6. Changing Consumer LandscapeIn more diverse and mobile societies and economies, new consumer groups areemerging. Consumer segmentation now requires new lenses, as new sources ofsimilarity and difference emerge. Consumers increasingly demand moreinvolvement in and customization of consumption experiences.
7. Changing Industry LandscapeBusiness models must become more flexible. Power is shifting along the valuechain and the competition to create and capture valueand profitsisintensifying. The emergence of BRIC multinationals means more intense
competition. Flexibility and innovation are critical to avoid being stuck in themiddle.
8. Changing Nature of CapitalGlobal financial flows are accelerating, with Asia increasingly funding the deficitspending of the U.S., partly, Europe, leading to global systemic risks now beingrealized as the current credit crunch redefines the global financial system. Newpower brokers are emerging, reshaping market dynamics and potentially raising
tensions.
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Current Business Landscape &Changing Demand: contd
9. Changing Labor LandscapeA raging global war for talent for both skilled and low cost jobs is increasing.Asia is increasingly important for all types of skills. Partnering and outsourcingis on the rise within and across borders.
10.
Growing Pressu
re on Natu
ral Resou
rc
esBasic resources are under threat, including water, energy, food andhabitats/climate. Consumption of critical resources is outpacing the rate that theplanet can sustain. Public and institutional activism is rising, demanding action.
11. Changing Technology LandscapeA global technology revolution is gaining pace, crossing national borders and
scientific disciplines. New technologies, including biotechnology andnanotechnology, will reshape industries and our daily lives.
12. ChangingEconomics of Information and KnowledgeExploding connectivity and channels for information are making knowledgecreation a global imperative. Networking is critical! Gaining an advantage inand protecting knowledge is difficult to achieveand even more difficult to
sustain.
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Global Competitive Pressures:
As discuss iced in class Time & Again
Read about Globalization and as networkedEconomy
Attached Reference reading:
Modulus\UNIT-1\world without Borders.pdf
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A great advantage of Globalization is theopportunity To source them from the bestsource of the world.
To take advantages Of Various technology ,Human capital, Quality, Costs, Raw Materials,and other sources advancements around the
Globe.
To take advantages of certain legal ,political,economical, and Social aspects Of trade.
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7
Globalisation of the Economy
Global Markets
New Technologies Protectionism
Tariff and Non-tariff Barriers
Easing Trade Barriers GATT, WTO and IFM
EU, NAFTA, APEC, ASEAN
Globalisation of the Economy
Global Markets
New Technologies Protectionism
Tariff and Non-tariff Barriers
Easing Trade Barriers GATT, WTO and IFM
EU, NAFTA, APEC, ASEAN
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Need Based Economy
Global Competition
Liberalized Economy
Compete or Perish
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How the company will compete in a changing competitiveenvironment?
How companies make money:
Raise PricesINCREASE REVENUE
Increase Volume
Reduce Cost of People (downsize)
DECREASE COSTS Reduce cost of process waste
Reduce cost of matls
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A Production-Distribution System
rawmaterialsinventory
finishedgoods
inventory
work inprocess
inventory
FACTORYA
FACTORY
B
(raw matl delivery:road, rail,sea, air or
pipeline) (customer serviceby wholesaleandretail outlets)
small industries
rapid tech.innovation
increasingglobal
comptn
globalisationof markets
Just-in-timeinventory
pressures onpricing
pressures ontime-to-mkt
shorter pdt.
life cycles
stress on
quality
Demandingdelivery sched.
rapid responsetime-to-market
Individual customized prodn.
Pressures/ Challenges faced by the Manufacturing Sector
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Research &
Development
Product
Design
Process
Development
Goods
Services
After-Sale
Raw
Materials
Labor
Technology
Infrastructure
Country A
Country C
Country B
Country D
The Global Supply Chain: Intra-Firm Coordination.
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12
Distributor Storage withCarrier Delivery Dell inventory
Factories
Customers
ProductFlowInformation
Flow
Warehouse StoragebyDistributor/Retailer
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Survey findings OnInternational Sourcing:
Modulus\UNIT-1\Survey trends inoutsourcing.docx
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International Economist Viewon Importance Of Sourcing:
Read Points on Sourcing By Different points onSourcing.
Modulus\UNIT-1\International EconomistView.docx
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The process (stages) of
Internationalization
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Stages
1. Domestic
2. Export
3. International4. Multinational
5. Global/Transnational
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Stages
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Market Entry Strategies
1. Exporting.
Direct Or Indirect Exporting
1. Licensing
2. Contract Manufacturing.3. Management Contract.
4. Assembly operations.
5. Fully owned Manufacturing facilities.
6. Joint venturing.7. Counter trade.
8. Mergers & Acquisitions.
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Market Entry strategies
10. Strategic alliance
11. Third country location.
12. Sourcing.
13. Collaboration.Licensing:
It is a method of overseas operation whereby a company in one country thelicensor) enters into an agreement with an company in other country(the licensee) to use the manufacturing, processing, knowledge, trade
secrets, mark , name, brand, patent, te
chni
cal assistan
ce, marketing orsome other skill provided by the licensor in exchange to the royalties,
fees ,profit sharing or income.
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Market Entry strategies
Joint venture: In the widest sense, any form ofassociation which implies collaboration for morethan a very transitory period, is a joint venture.
Management contracts: under management contracting,the international marketer supplies managementknow-how for a company in a foreign country forwhich capital is provided by the investor of thec
ou
ntry in thec
ompany is loc
ated.
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Market Entry strategies
Contract Manufacturing: Assembly operations
Under Contract manufacturing, the company engaged ininternational marketingcontracts with the firms in
the foreign country to manufacturer assemble itsproducts while retaining the responsibility ofmarketing and distribution etc of these products .
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Decision Criteria for InternationalOperations
1. Political risk
2. Market access
3. Factor costs and conditions
4. Shipping Considerations5. Country information
6. Foreign Exchange
7. Creating : Product- Market Profile
8. Market selection Criteria
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ALTERNATIVE STRATEGIESALTERNATIVE STRATEGIES
International
High
Glob
alCo-ordination
Integration
Low
Low High National differentiation, Responsiveness
Multi-
National
GlobalTrans-
National
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UNIT-2
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Basic Understandings onSourcing
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Global Sourcing:
Outsourcing has already become a well acceptedBusiness Strategy.
Every Small & big organizations isoutsourcing some of their products or part oftheir Products or the process involved in the
manu
fac
tu
re of a Produc
t.
The buzz Word Today is Global Sourcing
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Reasons for Global sourcing
To improve Productivity
To focus on Core Competencies
To inc
rease Flex
ibility in Operations To tap the best Resources around The globe
To Find out New avenues In Production &Markets
To Maximize the Profits and to minimize costs.
To integrate the best processes & Practices fromaround the world.
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Out sourcing:
Out sourcing is Contracting with anExternal firm for the ongoing management anddelivery of a defined set of products & services
to a prescribed Level of performance .
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Why outsourcing?
The economic rationales from the firms pointof view
More cumbersome non-core activity that requiressubstantial capital investment and other resourcesOf the firm to the third party could free up thoseresources for better deployment.
As the third Party service provider specialize inthe task, they tend to give better Quality &Cost than if the function were performed in house.
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Why outsourcing? Contd
Along with the cost reduction, quality alsoimproves as the outsourced service orproduct is provided by a supplier with thebest domain knowledge
A Fresh perspective to the gains ofoutsourcing is that Greatly increases &enhances the quality of the workforce- PeterDrucker
In some cases Outsourcing may increasethe costs but bring in bettereffectiveness
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Ou
tsou
rc
ing may Focu
ses on thec
orecompetences Of a firm and evolves fromtime to time as a competitive advantage.
Ou
t sou
rc
ing brings inA
mu
tu
al Benefic
ial& profitable For both the companies andcreates a win-win situation and also for theeconomy at large.
Companies have opted for out shoring toscale up services to their customers byoffering Quality, cost and timeadvantages
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Sourcing and few terms Oftenused in this context
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Global Strategy
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Read Global strategy Word file attached
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key factors related toeffective global sourcing.
These factors, have been organized as follows:
1. Global sourcing organization and focus, whichincludes the development of foreign logistics, globalpurchasing and supply chain management skills, and
integrated information systems2. Foreign language skills, which includes the ability to
send and receive correspondence and contracts in thesupplier's language, as well as a more generalinternational language capability
3. Global sourcing business capabilities, which includesknowledge of exchange rates, understanding offoreign markets and their opportunities, knowledge offoreign business customs and foreign supplierqualification methods, and development of methods todeal with foreign suppliers
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5. Top management support;
6. Developing communication skills;
7. Establishing long-term relationships;8. Developing the skills unique to international
sourcing.
9. Other factors purported to be important forglobal sourcing success include understanding
international business opportunities, knowledgeof foreign business practices, qualifying foreignsuppliers, and planning for internationalsourcing.
10. Top management commitment and support,global structures, international communicationskills, and global sourcing capabilities arecritical components of effective global sourcingstrategies.
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The Theory of Absolute Advantage --Adam Smith
Different countries produce some goods
more efficiently. This may due to differences
in factors such as climate, quality of land,
natural resources, labour, technology, capitalor entrepreneurship.
If each country specializes in the product for
which it has absolute advantage, each can
use its recourses more effectively.
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CULTURE
the way we do things arou
nd here.
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4
0
Outsourcingand
Offshoring
When is change necessary?
When the environment is undergoingfundamental change, and the organization has
always been highly value drivenAdvent of new technologies
Pressure on traditional business models
Globalization
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What does change look like?
Management
Risky
Critical
Time-consuming
Employees
Threatening
Confusing Insecurity
Positive
Excitement
Opportunity
Motivation
Negative
Resistance
Questioning trustGlorification of past
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4
2
Outsourcingand
Offshoring
Promote and manage change
ManagersArticulate objectives clearly
Lay out step-by-step plan
Align employee incentives with objectives Employees Participate directly in process
Coordinate and implement change
Communicate concerns constructively
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Order/ Product Flow through Supply Chain Functions
Order Management Channel A
Channel B Customer
Channel CProductDistribution
Manufacturing
Demand PlanningSupply PlanningPart Supply
Orders
Demand
Forecast
Component
Requirement
Parts ProductionPlans
Products Products
Orders
Products
Products
Orders
Orders
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TYPES & Hierarchal Levelssourcing of Business Functions
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Three types of sourcing deals
Relationship Complexity
Business
Value
Efficiency
Enhancement
Transformation
Cost Improvement
Focused
Operation performanceImprovement focused
Business Performance
Improvement Focused
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Value andDelivery Model
Four World Strategy
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Custom
Operational Outcome
Standard
Value
Delivery
Management
One-to-one
Fee forservice level
Optimization
One-to-one
Pay For businessPerformance
Creation
One-to-Many
Many-to-Many
Business Transaction
Priced
Access
One-to-ManyMany-to-Many
Pay forUsage
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The vertical axis: Value Axis
The vertical axis shows the value of service in termsof its direct impact on business Goals.
At Other bottom end are those services thatprovide operational outcomes. These are the
services that other services and processes are built,as such their direct impact on the businessoutcomes is hard to measure.
These Services tend to be measured or determinedor denominated in terms of process or servicemetrics.
The Focus of the management of these servicesovertime is on increasing productivity, reliabilityand performance or loweringcost or both
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The vertical axis: Value Axis
At the top end of the easily measurable in termsof ,for value axis is the business Outcome.
These are the services impact on business goals
is much more direct and easily measurable interms of, for instance, Brand dominance,revenue enhancement, Early mover advantageor Competitive advantage rather than being
measu
red in process effi
cien
cy,
These services are evaluated by their impact onthe business goals (e:g, customer satisfaction,Market share, revenue, Profitability)
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The Horizontal axis: DeliveryAxis
The horizontal axis describes how the service isdelivered.
At one end , are the services that are completelycustomized to a specific organization environment
The service may tap into standard processes andindustry or cross industry best practice, is adaptedto the idiosyncrasies of the organization- itsspecific work flows, forms, customs and culture.
A
t the other ex
treme end of the ax
is is tostandization, The more the recipients that use the standard
services, the greater the economies of scale andlower the cost of service.
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The Management Quadrant
This Quadrant describes a world in which the goalsare predictable and often decliningcosts andoperatio.nal efficiency and availability.
When the service is this quadrant are purchased from
an ou
tside provider, the financial model is based on afee, for a specific service level.
The cost of service will rises if the higher service levelsare desired, the cost of service declines if lower servicelevels are acceptable.
Ex-Internet service provider, when the service isoutsourced the organization expects little change in theway of services are delivered but expects to gain fromthe vendors expertise and competence and overtime,excepts these leverage points to lead to lower costs.
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The Access Quadrant
As in the management model , the value in theAccess model is an improvement in operationalefficiency.
Unlike the M-model, the A-model has theorganization accessing a utility- like service,
One instance of this service now common is theability to rent a band width for a limited periods
to meet peak demand Ex Power generators'
The organization pays for the capacity It uses.
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The Optimization Quadrant
In the upper quadrants , the service model moves froman operational focus to a Focus on business outcomesand business metrics.
The optimization quadrant is again one to one
delivery model, specifi
cto the re
cipient's enterprise
.
In the optimatization world, The recipient pays for thespecific performance levels that optimize the recipient'sBusiness model.
As a result, payment schemes often depend on specific
business outcomes such as Market -share growth,Reverence growth, profitability or entry into newmarkets, or are based on the service providers earningsa share of profit or revenue generated.
Because of the much larger share-risk component Of
suc
h relationships, they often involve equ
ity sharing.
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The Creation Quadrant
It named creation world because this approach tosourcingcan create new Revenue streams or newbusiness value.
Typical of the creation world is the emergence of newBusiness models, referred to as business Process For
application Utilities. Ex-SAP Application The service aims at Improving systems, Customer
Service and Sales productivity. The service recipient Does not purchase the complete
licenses for application or own the Underlyingtechnology infrastructure.
Importantly, by forging ownership and customizationof the application, the service recipient Gains speed Toimplement and greater control of costs, as the fees are
based on usage.
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Potential drivers for MakeOr Buy Decision
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Outsourcingand
Offshoring
What is a make or buy decision?
Sometimes it makes more sense to buy servicesrather than perform the task in-house The argument for outsourcing
Proficiency
Complexity
The argument against outsourcing Control
Flexibility The verdict
Either can make operational and financial sense
Arguments for, can become arguments against
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Outsourcingand
Offshoring
Deciding whether to make or buy
What do you want to accomplish?
How is it done now?
What can you do?
Make
Buy
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Outsourcingand
Offshoring
Set objectives
What? Improve quality
Reduce time
Cut costs Why? Rationale
Importance
When? Timeframe
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Outsourcingand
Offshoring
Needs assessment
Identify your needs The more crucial the task, the more details need to be
specified
Workflow and outputs Policies
Steps
Time increments
Staff and system capabilities
Classify your needs Long-term, medium-term, immediate
Low, medium, and high priority
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61Outsourcing and
Offshoring
Review options
Outsourcing
Availability of options
Competitor offeringsAppropriateness
(esp, offshoring)
Gains from technology
Interface issues
In-house
Core competencies
Competing
prioritiesCareer path
Skills to task
Supervision
Corporate culture
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Outsourcingand
Offshoring
The RFP process: a 5-point plan
1. Identify potential suppliers
2. Prepare and distribute the RFP
3. Evaluate proposals
4. Meet with finalist/s
5. Decide on supplier
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Outsourcingand
Offshoring
Prospective suppliers
IdentifyDirect and indirect competitors
Industry meetings and periodicals
Visit Web sites Pre-screen Experience
Interest
Time
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K
aufman-Wills Group64
Outsourcing and
Offshoring
Prepare the RFP: components
Stated objective
Organizational overview
Required deliverables Product specifications
Service expectations
Assumptions, agreement Start date, length of initial
term
Budget, costconsiderations
Ownership of data, code,etc.
Required proposal format Technical section Time-cost section Additional documentation
Submission Deadline Contact Basis of award of contract Award date
Send Targeted suppliers With sample materials Confirm receipt
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Kaufman-Wills Group65
Outsourcingand
Offshoring
Evaluate proposals
Decide on evaluation criteria Financial
Qualitative
Create summary grid/s Compare apples to apples
Involve stakeholders appropriately
Goal: good decision, perhaps not best decision
Select finalist/s
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Outsourcing and Offshoring
Evaluating alternatives
Make Buy1 Buy2
What it
meansPotential
benefits
Potential
drawbacks
Coststo
consider
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Outsourcingand
Offshoring
Meet the finalist/s
Presentation
Q&A
Meet and greet
Tour
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Outsourcingand
Offshoring
Decide on supplier
Decide on supplier
Notify all prospective suppliers
Enter into contract negotiation
Set timeline for completion
Business terms first
Legal sign off afterward
International policies:Easing
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International policies:EasingTrade Restrictions
General Agreement on Tariffs and Trade(GATT)
World Trade Organisation (WTO)
International Monetary Fund (IMF)
Multinational Market Regions (EU, NAFTA,A
PE
C, andA
SEA
N)
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Strategies In International context
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Read related topics in UNIT-2 folder , take ideas& Make points
Modulus\UNIT-2\Brochure_Epiq_Sourcing.pdf
Read Pages , take ideas & Make points
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Modulus\UNIT-5\ib97e0_-_global_sourcing_of_strategic_information_technology__mmba_.pdf
Read Page 5,6 & 7
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Gats
The creation of the GATS was one of the landmarkachievements of the Uruguay Round, whose resultsentered into force in January 1995.
The GATS was inspired by essentially the same
objectives as its counterpart in merchandise trade,the General Agreement on Tariffs and Trade(GATT): creating a credible and reliable system ofinternational trade rules;
Ensuring fair and equitable treatment of all
participants (principle of non-discrimination); Stimulating economic activity through guaranteed
policy bindings; Promoting trade and development through
progressive liberalization.
Is it true that the GATS not only applies to cross-border flows of
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Is it true that the GATS not only applies to cross border flows of
services, but additional modes of supply?
The GATS distinguishes between four modes ofsupplying services: cross-border trade,consumption abroad, commercial presence, andpresence of natural persons.
Cross-border su
pply is defined tocover servi
cesflows from the territory of one Member into the
territory of another Member (e.g. banking orarchitectural services transmitted viatelecommunications or mail);
Consumption abroad refers to situations where aservice consumer (e.g. tourist or patient) moves intoanother Member's territory to obtain a service;
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Commercial presence implies that a servicesupplier of one Member establishes a territorialpresence, including through ownership or lease ofpremises, in another Member's territory to providea service (e.g. domestic subsidiaries of foreigninsurance companies or hotel chains); and
Presence of natural persons consists of persons ofone Member entering the territory of anotherMember to supply a service (e.g. accountants,doctors or teachers). The Annex on Movement of
Natu
ral Persons specifies, however, that Membersremain free to operate measures regarding
citizenship, residence or access to the employmentmarket on a permanent basis
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Theories of InternationalTrade
The Theory of Absolute Advantage --
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The Theory of Absolute Advantage Adam Smith
Different countries produce some goods
more efficiently. This may due to differences
in factors such as climate, quality of land,
natural resources, labour, technology, capitalor entrepreneurship.
If each country specializes in the product for
which it has absolute advantage, each can
use its recourses more effectively.
Possible Product Outputs
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78 78
Possible Product Outputs(for certain resources & lab our)
Country A CountryB
Product X 20 10
Product Y 10 20
e eory o ompara ve
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Advantage -- David Ricardo
A country specializes in those products
that it can produce most efficiently than
other products without regard to absolute
advantage.
A country would focus on the product
with greatest comparative advantage or a
product with the least comparativedisadvantage
Possible Product Outputs
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80 80
Possible Product Outputs(for certain resources & labour)
Country A CountryB
Situation1
Product X 20 10
Product Y 10 20
Situation2
Product X 20 10
Product Y 30 20
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D f t i th th
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Defects in the theory UnrealisticAssumption of labour Cost.
Static nature of the theory
Neglect of transport costs.
Assumption of constant costs.
Factors Immobile Internally Unrealistic theory based on assumptions.
Inadequate explanation of comparative cost.
Demand conditions ignored.
Complete specialization is impossible.
Heckscher-Ohlin Theory of Factor
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Heckscher-Ohlin Theory ofFactorEndowment
Argues that comparative advantage arisesfrom differences in Factor Endowment.
Extent to which a country is endowed with such
resources as Land,labour and capital. Different nations have different factor
endowments and different factor endowmentsexplain differences in factor costs.
The more abundant a factor, the lower is thecost.
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Order/ Product Flow through Supply Chain Functions
Order Management Channel A
Channel B Customer
Channel CProductDistribution
Manufacturing
Demand PlanningSupply PlanningPart Supply
Orders
Demand
Forecast
Component
Requirement
PartsProduction
Plans
Products Products
Orders
Products
Products
Orders
Orders
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Economic Indicators
Module II: International Eco
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Module II: International Ecosystem
The eco system, economic indicators andcharacteristics of operating in North America
(USA), Europe (EU),
Asia (China),
Latin America (Brazil), Africa (South Africa) &
Middle-East (UAE).
f d f
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Drivers ofTrade Performance
Efficiency Responsiveness
Inventory Transportation Facilities Information
Supply chain structure
Drivers
Source: Chopra & Meindl/Logistics Strategy
E i I di
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Economic Indicator:
An economic indicator (or business indicator)is a statistics about the economy.Economic
indicators allow analysis of e
conomi
cperformance and predications of future
performance. One application of economicindicators is the study of Business cycles.
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