Tag: Ch.2

OM in the News: Jobs for Americans and Pink Slips for the Chinese?

Yes, you read the headline right: “Jobs for Americans and pink slips for the Chinese”, says the quote  in the current issue of Businessweek.  It turns out companies from China are setting up shop in the US to avoid trade barriers, to capitalize on the US government’s alternative energy push, and to pick up on some of our new technologies.

For 20 years, US manufacturers have decamped to China in search of cheaper labor and parts. Now things may be turning the other way. China’s Suntech  just opened  a solar panel plant near Phoenix to bring the company closer to its American customers (which means big savings on shipping costs) and into compliance with “Buy American” government contracts. Tiajin Pipe is opening a $1 billion steel pipe mill near Corpus Christi, Texas, to circumvent 63% US tariffs. Tiajin will employ 500-600 people. Beijing’s Pacific Century Motors just bought Michigan-based Nexteer Automotive, a car part manufacturer, and employs 3,600 workers in Saginaw.

 Letting  in Chinese companies isn’t as controversial now that the US is bleeding manufacturing jobs. With unemployment hovering near 10%, US officials have put aside concerns about unfair Chinese competition. “Chinese companies, thanks to government-backed loans, monopolies, and preferential treatment, are awash in cash and should be a source for investment in the US economy–investment that would help maintain and create jobs in the US”,  wrote the US ambassador to China  in a diplomatic cable on Jan.28,2010, which was recently disclosed by WikiLeaks.

How does this relate to pink slips in China?  Suntech is using more advanced equipment in Arizona than in its home plant in Wuxi.  Here, 30 Americans are producing the same number of solar panels as 100 Chinese. “If it works well, we can integrate the same manufacturing technology in China”, says the plant manager. “This would help Suntech China make a manpower reduction”. Perhaps this is the 1st turnabout in US-Chinese relations.

Discussion questions:

1. What are the benefits and dangers to the US  of  Chinese plants opening here?

2. What happened when  a China oil company tried to buy Unocal for $18 billion in 2005? Why the change?

OM in the News: Terrorism and The Global Supply Chain

It’s not every day that The Wall Street Journal publishes an editorial by the US Secretary of Homeland Security, Janet Napolitano, entitled “How to Secure the Global Supply Chain” (Jan.6,2011).  In it, Napolitano writes, “The complex supply chain that consumers and businesses in the US rely on every day is a target for those who seek to disrupt global commerce”. This is certainly a topic we need to consider adding to our discussions of global OM issues in Ch.2 and Ch.11.

Regardless of where a terrorist event takes place, a significant disruption of our supply chain may follow.  An example was the Oct., 2010 plot to put explosives on a UPS cargo flight bound for the US from Yemen. Following that act, the Dept. of Homeland Security required all cargo on passenger planes within the US to be screened. It also screens all US-bound air cargo that is considered high risk (most likely from terror-sponsoring countries, I would surmise).

Napolitano names 3 elements to the US plan:

1. “Preventing terrorists from exploiting the supply chain to plan and execute attacks”. This means working with customs groups and shippers to keep chemicals out of the hands of terrorists.

2.”We must protect the most critical elements of the supply chain, like central transportation hubs, from attack or disruption”.

3.”We must make the global supply chain more resilient, so that in case of disruption it can recover quickly”.

Incidentally, 2 days after this article, the Journal reported that Secretary Napolitano received a small bomb in a package that exploded in her mailroom (WSJ, Jan.8-9,2011).

Discussion questions:

1. In what ways can a disruption of the global supply chain impact a business in the US, such as IBM, GE, or Boeing?

2. What other events, beside a terrorist strike, can effect the supply chain? How?

OM in the News: China’s Drive to Innovate

We have  blogged several times about China’s success at reverse engineering such products as bullet trains, solar technology, drones, jet fighters, wind turbines, and computers. And, indeed, one of our strengths in the US has been the ability to stay ahead of  competition through innovation (See Ch.5 and Figure 5.2).  But The New York Times (Jan.2, 2011) has just reported that China has issued a new government policy aimed at increasing the number of inventions in that country. China’s goal is to have 2 million patent filings/year by 2015. (In 2009, there were 300,000 in China and 480,000 in the US).

So can China become a prodigious inventor?  The answer will play out over decades–but also shape the global economy. “The leadership in China knows that innovation is its future, the key to higher living standards and long-term growth”‘, says the Director of US Patents. But the Chinese approach is an innovation by-the-numbers mentality, says one consultant. It is “emphasizing the quantity of innovation assets more than the quality.”

China’s strategy is guided and sponsored by the state. Should this be  a source of concern  for the US? Despite China’s inevitable rise, the US has a comparative advantage because it is the country most open to innovation. Our culture  forgives failures, tolerates risk, and embraces uncertainty.

Discussion questions:

1. In the 1980’s, Japan was considered a similar threat to American industry. What happened?

2. Will China overtake the US one day as the world’s leader in innovation?

3. Comment on China’s use of metrics to meet the goal. What incentives are they using?

OM in the News: China Writes the Rules for Wind Power

 It surely seems as though the headlines every week relate to China taking a dominant manufacturing position in another industry. What the US will do about the continuing loss of  global manufacturing market share might be of concern to every student in an OM class. Today’s front page New York Times story is called “To Conquer Wind Power, China Writes the Rules”.

As we have blogged recently, the pattern is repeating: Chinese firms acquire the latest Western technology by various means, then take advantage of government policies to become the world’s dominant, low-cost suppliers. This is the case in high-speed trains, drones, jet fighters and commercial jets, solar power, nuclear reactors, cell phones, and desktop computers.

Gamesa, a Spanish firm, and a world leader in wind energy turbines, has just learned that the competing for China’s lucrative business means playing by rules stacked in Beijing’s favor. Gamesa’s share of the Chinese market dropped from a third in 2005, to 3% today. The Chinese now control half of the $45 billion global market for wind turbines, and are taking direct aim at the US, where GE has long been the leader. Sinovel, backed by $13 billion in Chinese government loans, is opening offices across the US.

How has this happened? Four reasons, according to the Times: low -interest loans, cheap land from the government, preferential contracts from state-owned companies, and dramatic “local content” laws. The latter, trade lawyers say, are direct violations of the WTO. But the Chinese government has bet–correctly–that Gamesa, GE, and other multinationals, are unwilling to risk losing a piece of the Chinese pie by complaining. Says one wind industry CEO anonymously, “Everybody was too scared”.

Discussion questions:

1. What is the US government position regarding such Chinese dominance?

2. What other industries have followed this pattern?

3. Why is China so successful with this manufacturing strategy?

OM in the News: Mission Statements that Need Some Work

One of our topics in Ch. 2 is mission statements, and we give examples of three of them we think are good : Merck, Hard Rock Cafe, and Arnold Palmer Hospital. When I cover this material, I usually ask students to each find a concise one of their own to share with the class.

The Wall Street Journal’s (Nov.26,2010) front page article provides a few  mission statements that might be a bit clearer. Let me share these with you:

Ingersoll-Rand: “World leader in creating and sustaining safe, comfortable and efficient environments”. Translation: the company makes locks, A/C equipment, and battery-powered golf cars. The chair of the Center for Plain Language responds, “I picture a large swath of Amazonian jungle under the gentle and effective care of Ingersoll-Rand”.

Parker Hannifin: “The global leader in motion and control technologies”. Their main products are pumps and valves. The Journal writes, “the description might equally apply to a maker of lingerie”.

TRW Automative Holdings: “The global leader in active and passive safety”. The rest of us call these brakes and seat belts.

DXP Enterprises: “A leading products and service distributor focused on adding value and total cost savings solutions to MRO and OEM customers in virtually every industry since 1908”. In plainer language, a VP says we distibute “pumps, tools, nuts, bolts and safety supplies such as hard hats”.

Finally, my favorite, Sykes Enterprises: “A global leader in providing customer contact management solutions and services in the business processing outsourcing arena”. Translation: they operate call centers and help desks.

Discussion questions:

1. Why is it so hard to write a good mission statement?

2. What do you do when you are a company like 3M, which makes about 55,000 diverse products?

3. Why is the Arnold Palmer Hospital statement (see Ch.2) so well written?

OM in the News: Where Should Starbucks Open More Stores?

Under pressure to increase sales and share prices,  Starbucks needs to add new stores in the right locations. The trouble is, the US market is saturated. So far, Starbucks has done very well in a handful of overseas markets. About 55% of its sales are in Canada, Japan, the UK, and China. But now even the UK and Canada are near capacity.  Toronto, Vancouver, and London already have more Starbucks per person than NY or Philadelphia.

So the title of The Wall Street Journal article (Nov.4,2010) on the subject tells it all: “Starbucks Must Open More Stores–Overseas“. The Journal suggests Starbucks follows the McDonald’s international expansion. Where will the growth be? Germany and France are two prime candidates, as Starbucks has relatively few locations in each.

While McDonald’s draws about half its operating profit from overseas, Starbucks gets only 15% abroad. The Journal concludes: “Whether dry or wet, tall or grande, Starbucks needs to find a  combination for similar overseas success”.

Discussion questions:

1. Why was McDonald’s so successful in its expansion abroad, and why will it be harder for Starbucks?

2. How can Starbucks increase profits without going overseas?

OM in the News: Japan’s Offshoring is Restructuring Its Economy

If you think outsourcing (transferring in-house processes to another company) and offshoring (which we define in Chapter 2 as moving business processes to another country, but retaining control) are a problem only in the US, think twice. Today’s Wall Street Journal (Oct.25,2010) reports that more and more Japanese companies are transferring their manufacturing abroad, creating a major restructuring of that country’s economy.

The reasons: too strong a yen and high wages, both of which make their goods more costly and less competitive in the global economy.

Toyota, for example, will make 57% of its cars abroad this year, including its flagship hybrid, the Prius, which it starts producing at  a Bangkok plant. Nissan will hit 71% offshoring this year. And Sony is skyrocketing from 20% abroad in 2010 to 50% in the next fiscal year.

As Nissan CEO Carlos Ghosn recently stated: “sourcing more and more products outside Japan–there is no other way to compete”. Only 10.3 million Japanese now work in manufacturing, down from over 12 million in 2002.

Discussion questions:

1. Although controversial, why is Japan not fighting outsourcing/offshoring as much as the US does? (See our blog of Oct. 12th for some background on the battle against outsourcing in the US).

2. Why is Japan finding it necessary to go abroad?

3. Japanese are consumers are reluctant to spend. Why?