Global Factors in Operations

HSC Business Studies | Free Study Notes

Global factors in operations are important because many businesses now source, produce, learn and compete beyond their domestic market. In HSC Business Studies, this topic helps explain how global sourcing, economies of scale, scanning and learning, research and development, and global competitiveness influence operations strategy.

In this lesson

• What global factors mean in operations

• How global sourcing affects operations

• How economies of scale can reduce costs

• Why scanning and learning help businesses improve

• How research and development supports global competitiveness

Core notes

What are global factors in operations?

Global factors are international influences that affect how a business manages its operations.

These may include:

• overseas suppliers

• global production locations

• international competitors

• global technology trends

• overseas customer expectations

• worldwide supply chains

• research and development from other markets

Global factors matter because operations decisions can affect whether a business can compete successfully in both Australian and international markets.

This links closely to globalisation and operations [Globalisation and Operations], because globalisation increases the connection between businesses, suppliers and markets around the world.

Global sourcing

What is global sourcing?

Global sourcing means purchasing inputs from suppliers in other countries.

These inputs may include:

• raw materials

• components

• finished goods

• technology

• packaging

• business services

• labour

For example, an Australian furniture business may source timber from one country, fabric from another and metal fittings from another.

Why businesses use global sourcing

Businesses may use global sourcing to:

• reduce input costs

• access specialised materials

• improve quality

• access new technology

• increase supplier choice

• support larger-scale production

• improve product variety

Global sourcing can help a business improve its cost position and become more competitive.

This links to supply chain management [Supply Chain Management], because global sourcing depends on reliable suppliers, transport, logistics and inventory planning.

Risks of global sourcing

Global sourcing can also create risks.

These include:

• shipping delays

• exchange rate changes

• quality control problems

• communication issues

• ethical concerns

• political instability

• environmental concerns

• dependence on overseas suppliers

For example, if an overseas supplier is delayed, an Australian business may not receive the materials it needs to continue production.

Operations managers must balance lower costs with reliability, quality and risk.

Economies of scale

What are economies of scale?

Economies of scale occur when a business reduces its average cost per unit by increasing output.

As a business produces more, it may be able to spread fixed costs over a larger number of units.

For example, a large manufacturer may use expensive machinery to produce thousands of units. The cost of that machinery is spread across many products, reducing the average cost per item.

How global operations support economies of scale

Global operations can help businesses achieve economies of scale by giving them access to:

• larger markets

• larger production runs

• cheaper suppliers

• bulk purchasing

• global distribution networks

• specialist production facilities

For example, a business selling products internationally may produce much larger quantities than a business selling only in Australia. This may reduce the average cost per unit.

Economies of scale and competitiveness

Economies of scale can help a business compete because lower average costs may allow it to:

• offer lower prices

• improve profit margins

• increase production efficiency

• compete against global rivals

• invest more in technology or marketing

This links to cost-based competition [Cost-Based Competition], because reducing average costs can support price competitiveness.

Scanning and learning

What is scanning and learning?

Scanning and learning means observing global trends, competitors, technologies and business practices to improve operations.

A business may scan and learn from:

• overseas competitors

• international trade shows

• global suppliers

• industry reports

• new technologies

• customer trends in other countries

• successful production methods used overseas

Scanning is about looking for useful information. Learning is about applying that information to improve business performance.

Why scanning and learning matter

Scanning and learning can help a business:

• identify new technology

• improve production methods

• reduce costs

• improve product design

• respond to customer trends

• avoid being left behind by competitors

• improve quality and efficiency

For example, an Australian food manufacturer may study packaging innovations used overseas and adopt similar methods to reduce waste or improve product shelf life.

Scanning and learning in operations

Scanning and learning can influence operations decisions such as:

• which technology to adopt

• how to improve workflow

• which suppliers to use

• how to reduce waste

• how to improve delivery systems

• how to design new goods or services

This links to technology: leading edge and established [Technology: Leading Edge and Established], because businesses may learn from global technology developments before deciding what to adopt.

Research and development

What is research and development?

Research and development, often called R&D, is the process of investigating, designing and testing new or improved goods, services and processes.

R&D may involve:

• developing new products

• improving existing products

• testing new materials

• improving production methods

• designing new service systems

• trialling new technology

• improving environmental performance

For example, a sportswear business may invest in R&D to develop lighter, more durable fabrics.

Why R&D matters in operations

R&D can help operations by improving:

• product design

• production efficiency

• quality

• sustainability

• customer satisfaction

• speed of production

• cost control

• competitiveness

R&D can also help a business respond to global competition by creating goods or services that are harder for competitors to copy.

This links to new product or service design and development [New Product or Service Design and Development], because R&D often supports innovation and design decisions.

Costs and risks of R&D

R&D can be expensive and uncertain.

Possible issues include:

• high research costs

• long development times

• failed trials

• products not meeting customer needs

• competitors developing better ideas

• difficulty turning ideas into practical operations

However, successful R&D can create strong long-term benefits for the business.

Global competitiveness

What is global competitiveness?

Global competitiveness refers to a business’s ability to compete successfully with businesses from other countries.

A globally competitive business may compete through:

• lower costs

• better quality

• faster delivery

• stronger innovation

• better technology

• reliable supply chains

• unique product design

• strong customer service

Operations management is central to global competitiveness because it affects how efficiently and effectively the business produces and delivers outputs.

How operations improves global competitiveness

Operations can improve global competitiveness by:

• using global sourcing to reduce costs

• achieving economies of scale

• adopting technology from global markets

• using R&D to innovate

• improving quality management

• reducing waste

• building reliable supplier relationships

• responding quickly to customer demand

For example, an Australian business may become more globally competitive by sourcing specialist components overseas, using advanced manufacturing technology and investing in R&D to improve product quality.

Global factors and operations strategy

Global factors affect operations strategy because managers must decide how the business will compete in a global environment.

Operations managers may need to consider:

• whether to source inputs locally or globally

• how to manage global supply chain risks

• how to increase output efficiently

• how to learn from global competitors

• how much to invest in R&D

• how to improve quality and cost performance

• how to remain competitive against overseas businesses

A strong operations strategy uses global opportunities while managing global risks.

Worked example

An Australian bicycle manufacturer wants to compete with cheaper overseas brands.

The business uses global sourcing to buy specialist components at lower cost, studies European bicycle design trends through scanning and learning, and invests in research and development to create lighter frames. It also increases production to lower average costs through economies of scale.

An exam-style answer could say:

Global factors influence the bicycle manufacturer’s operations strategy by allowing it to use global sourcing, scanning and learning, and research and development to improve competitiveness. Global sourcing may reduce input costs, while scanning international trends can help the business improve product design. R&D can support innovation and quality. If the business increases output, it may achieve economies of scale, reducing average costs and improving its ability to compete with global rivals.

Common mistakes

• Thinking global factors only mean selling products overseas.

• Forgetting that global sourcing can create risks as well as cost savings.

• Confusing economies of scale with simply being a large business.

• Describing scanning and learning without explaining how the business applies what it learns.

• Ignoring the role of R&D in improving operations and global competitiveness.

Quick quiz

1. What is global sourcing?

2. How can economies of scale reduce average costs?

3. What does scanning and learning mean?

4. Give one example of research and development in operations.

5. How can global factors improve a business’s competitiveness?

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