International Business (9th, Wild) - Notes for Chapter (15).doc

4 Ch 15: Managing International Operations 3 Ch 15: Managing International Operations Chapter 15 Managing International Operations Learning Objectives: 15.1 Describe the elements to consider when formulating production strategies. 15.2 Outline the issues to consider when acquiring physical resources. 15.3 Identify the key production matters that concern managers. 15.4 Explain the potential ways to finance business operations. Chapter Outline: Introduction Production Strategy Capacity Planning Facilities Location Planning Location Economies Centralization versus Decentralization Process Planning Standardization versus Adaptation Facilities Layout Planning Acquiring Physical Resources Make-or-Buy Decision Reasons to Make Lower Costs Greater Control Reasons to Buy Lower Risk Greater Flexibility Market Power Barriers to Buying Raw Materials Fixed Assets Key Production Concerns Quality Improvement Efforts Total Quality Management ISO 9000 Shipping and Inventory Costs Reinvestment versus Divestment Financing Business Operations Borrowing Issuing Equity Issuing American Depository Receipts Advantages of ADRs Venture Capital Emerging Stock Markets Internal Funding Internal Equity, Debt, and Fees Revenue from Operations Capital Structure A Final Word A comprehensive set of specially designed PowerPoint slides is available for use with Chapter 15. These slides and the lecture outline below form a completely integrated package that simplifies the teaching of this chapter’s material. Lecture Outline I. INTRODUCTION Essential to success in international markets are production strategies, including the decision to centralize or decentralize production and standardize or adapt production to national markets. II. PRODUCTION STRATEGY Careful planning of production helps companies cut costs to become low-cost leaders and to design new products or product features necessary for a differentiation strategy. A. Capacity Planning 1. Assessing a company’s ability to produce enough output to satisfy market demand. 2. If capacity now used is greater than the expected market demand, production must be scaled back. 3. Countries have different laws regulating the ability of employers to eliminate jobs; depending on the country, a firm may or may not need to give advance notice of layoffs or plant closings. 4. If market demand is growing, managers must determine in which facilities to expand production or whether additional facilities are needed to expand capacity. 5. Capacity planning is also extremely important for service companies. B. Facilities Location Planning 1. Selecting a location for production facilities. 2. Key environmental factors in planning include the cost and availability of labor and management, raw materials, component parts, and energy. Other factors include political stability, the extent of regulation and bureaucracy, economic development, and the local culture, including beliefs about work and important traditions. 3. Reducing production costs through lower wages is often essential to keep products at competitive prices, especially when labor accounts for a large portion of total production. Lower wages must be balanced against worker productivity, which is lower in developing and emerging nations. 4. Service companies must locate near their customers and consider customers’ needs when locating facilities. 5. Supply issues are important in location planning; the greater the distance between production facilities and target markets, the longer it takes for customers to receive shipments. 6. Marketing managers must compensate for delays by maintaining larger inventories in target markets—adding to storage and insurance costs. 7. Shipping costs are greater when production is conducted far from target markets. Transportation costs are a driving force behind the globalization of the steel and potentially other industries. 8. Location economies a. Economic benefits derived from locating production activities in optimal locations. b. Companies undertake business activities in a location or obtain products and services from companies located there. c. The key fact is that each production activity generates more value in a particular location than could be generated elsewhere. The productivity of a location is heavily influenced by labor and capital. 9. Centralization versus decentralization a. Centralized production refers to the concentration of production facilities in one location. Decentralized production spreads facilities over several locations and could mean one facility for each business environment. b. Companies often centralize production facilities in pursuit of low-cost strategies and to take advantage of economies of scale. c. Transportation costs and the physical landscape affect the centralization versus decentralization decision. d. Because they typically sell undifferentiated products in all markets, low-cost competitors do not need to locate near their markets to respond to changes in buyer preferences. They choose locations with the lowest combined production and transportation costs. e. Firms must balance the cost of getting inputs into production and getting products to market. f. Companies with differentiated products find decentralized production the better option; locating separate facilities near different markets, they remain close to customers and respond to buyer preferences. g. When R&D and manufacturing must cooperate for differentiation, they tend to be located in the same place, although today technology allows for separate locations. C. Process Planning 1. Deciding the process a company will use to create its product. 2. Low-cost strategies require large-scale production because producers want the cost savings of economies of scale. 3. Differentiation strategies demand extra value by offering something unique, such as superior quality, added features, or special brand images. 4. Availability and cost of labor in the local market is crucial to process planning; if labor in the host country is cheap, a company opts for less technology and more labor-intensive methods in production. 5. Standardization versus adaptation a. Production processes must be standardized or adapted for different markets. b. Large production batches reduce the cost of producing each unit, offsetting the higher initial investment in automation; costs are further reduced as employees repeat the process and learn. c. Differentiation demands decentralized facilities to improve local responsiveness; these facilities produce for a national or regional market and tend to be smaller. Eliminates economies of scale and increases per-unit production costs. R&D costs are higher for products with special product designs, styles, and features. D. Facilities Layout Planning 1. Deciding the spatial arrangement of production processes within production facilities. 2. Facility layout depends on the type of production process, which depends on a company’s business-level strategy. III. ACQUIRING PHYSICAL RESOURCES International companies must acquire physical resources to begin operations. They must decide whether to make or buy the components for production processes. What will be the sources of any required raw materials? Will the company acquire facilities and production equipment or build its own? A. Make-or-Buy Decision Deciding whether to make a component or buy it from another company. 1. Reasons to make Vertical integration is the process by which a company extends its control over additional stages of production—either inputs or outputs. When a company makes a product, it engages in “upstream” activities: Production activities that precede current business operations. a. Lower costs i. The company decides to make the products rather than buy them in order to reduce total costs. ii. Companies use in-house production when it costs less than buying on the open market. iii. Small companies are less likely to make rather than buy, except if the company possesses technology or another competitive advantage. b. Greater control i. Making rather than buying can give managers greater control over raw materials, product design, and the production process itself—all of which are important factors in product quality. ii. Companies often undertake in-house production when persuading a supplier to make special modifications to a product on their behalf is difficult. iii. Companies keep greater control over product design and features if they manufacture components themselves. iv. Companies also make rather than buy when buying requires providing key technology. 2. Reasons to buy a. Outsourcing is the practice of buying from another company a good or service that is not central to a company’s competitive advantage. Outsourcing results from continuous specialization and technological advancement. b. By outsourcing, a company reduces vertical integration and its overall amount of specialized skills and knowledge. c. “Stealth manufacturing” calls for outsourcing the assembly of computers plus shipping to distributors and other intermediaries. d. Outsourcing is catching on in the pharmaceutical, computer manufacturing, and a new and interesting type of outsourcing seems to be increasingly popular. The online forum called InnoCentive, which connects companies and institutions seeking solutions to difficult problems using a global network of more than 145,000 creative thinkers. e. Lower risk i. Social unrest or open conflict can threaten physical facilities, equipment, and employee safety. ii. Eliminate the exposure of assets to political risk by refusing to invest in plants and equipment abroad; it can purchase products from international suppliers. iii. Eliminates the need to purchase expensive insurance coverage needed in an unstable country. But does not completely shield the buyer from disruptions; political instability can cause delays in receiving needed parts. f. Greater flexibility i. Making in-house products that require huge investment in equipment and buildings often reduces flexibility. ii. Companies that buy products from one or more outside suppliers retain or gain flexibility. Added flexibility is key in a change of attitude toward outsourcing. iii. Maintaining flexibility is important when the national business environments of suppliers are volatile. Buying from several suppliers or establishing production facilities in several countries allows outsourcing from one location if instability erupts in another. iv. Volatility in exchange rates can increase or decrease the cost of importing; by buying from multiple suppliers in several countries, a company maintains the flexibility to change sources and reduce risk. v. Companies maintain operational flexibility by not investing in production facilities; it can then alter its product line very quickly. vi. A company has financial flexibility if its capital is not locked up in plants and equipment; it uses excess capital to pursue opportunities. g. Market power i. Companies can gain power in their relationships with suppliers by becoming important customers. ii. Sometimes a supplier becomes a hostage to one customer when the supplier depends on a company with its production capacity; if the buyer outsources elsewhere, the supplier has few other customers. iii. This situation gives the buyer significant control in dictating quality improvements, forcing cost reductions, and making special modifications. h. Barriers to buying i. Companies sometimes face obstacles when purchasing products from international suppliers. ii. The government of the buyer’s country may impose import tariffs to improve the balance of trade. iii. The services provided by intermediaries increase the cost of buying abroad. B. Raw Materials 1. The twin issues of quality and quantity drive many decisions about raw material acquisition. 2. Some industries and companies rely almost exclusively on the quantity of locally available raw materials. 3. Raw material quality has a huge influence on the quality of a company’s end product. C. Fixed Assets 1. Fixed assets are company assets such as production facilities, inventory warehouses, retail outlets, and production and office equipment. 2. Companies can (1) acquire or modify existing factories, or (2) build new facilities—called a greenfield investment. 3. Considering either option involves many individuals, such as production managers, site-acquisition experts, legal staff, and public relations staff. 4. Local infrastructure must support proposed on-site business operations. IV. KEY PRODUCTION CONCERNS How manufacturing operation companies maximize quality and minimize shipping and inventory costs, and important reinvestment-versus-divestment decisions. A. Quality Improvement Efforts 1. Companies strive toward quality improvement for two reasons: costs and customer value. 2. Quality products keep production costs low by reducing waste in valuable outputs, reducing the cost of retrieving defective products, and reducing disposal costs due to defective products. 3. Some minimum level of acceptable quality is an aspect of every product today. A company that combines a low-cost position with a high-quality product can gain a competitive advantage. 4. Improving quality is important for service providers; quality is complex because a service is created and consumed at the same time. The interaction between an employee who delivers a service and the buyer is part of service quality. 5. Activities conducted prior to service delivery are also important. 6. Total quality management a. Emphasis on continuous quality improvement to meet or exceed customer expectations. It places responsibility on each individual to focus on the quality of output. b. By continuously improving quality, a company differentiates itself from rivals and attracts loyal customers. 7. ISO 9000 a. The International Standards Organization (ISO) 9000 is an international certification that companies receive when they meet the highest quality standards in their industries. b. To become certified, companies must demonstrate the reliability and soundness of all business processes affecting the quality of their products. B. Shipping and Inventory Costs 1. Shipping costs can have a dramatic effect on the cost of getting materials and components to the location of production facilities. 2. Shipping costs are affected by a nation’s business environment, such as its level of economic development, including the condition of seaports, airports, roads, and rail networks. 3. Because storing inventory is costly, companies adopt just-in-time (JIT) manufacturing—in which inventory is kept to a minimum and inputs to production arrive exactly as needed. Although the technique was originally developed for the automobile industry in Japan, it has quickly spread throughout manufacturing operations worldwide. 4. JIT drastically reduces the costs of large inventories and reduces wasteful expenses because defective materials and components are spotted quickly during production. C. Reinvestment versus Divestment 1. Managers need to decide whether to invest further in operations abroad or to reduce or divest international operations. 2. Companies continue investing in markets requiring long payback periods if the outlook is good. 3. Companies reinvest when a market is experiencing rapid growth. Investing in expanding markets is attractive because potential customers may not yet be loyal to the products of any one company or brand. 4. Companies scale back their international investments when it is apparent that profitability will take longer than expected. 5. Problems in the political, social, or economic sphere can force companies either to reduce investment or eliminate operations altogether. 6. Companies invest in operations offering the best return on investment; this means reducing investments or divesting operations in profitable markets to invest in more profitable opportunities elsewhere. V. FINANCING BUSINESS OPERATIONS Companies need financial resources to pay for operating expenses and investment projects. They must buy raw materials and component products for manufacturing and assembly activities. They need capital for expanding production capacity or entering new geographic markets and financing to pay for training and development, to compensate workers and managers, and to advertise. A. Borrowing 1. International companies (like domestic companies) try to get the lowest interest rates possible on borrowed funds. 2. Difficulties include exchange-rate risk, restrictions on currency convertibility, and restrictions on the international flow of capital. 3. Borrowing locally can be advantageous, especially when the value of the local currency has fallen against that of the home country. But companies are not always able to borrow funds locally; they are forced to seek international sources of capital. 4. A back-to-back loan is a loan in which a parent company deposits money with a host-country bank, which then lends it to a subsidiary located in the host country. (See Figure 15.1) B. Issuing Equity The international equity market (See Chapter 9) consists of all stocks bought and sold outside the home country of the issuing company. This helps firms to access investors with funds unavailable domestically. Yet getting shares listed on another country’s stock exchange can be a complex process. Complying with all the rules and regulations governing a stock exchange costs time and money. 1. Issuing American Depository Receipts a. To maximize international exposure, non-U.S. companies list themselves on U.S. stock exchanges. A non-U.S. company can list shares in the United States by issuing American Depository Receipts (ADRs)—certificates that trade in the United States and represent a specific number of shares in a non-U.S. company. b. International companies also use Global Depository Receipts (GDRs), which are similar to ADRs but are listed and traded in London and Luxembourg. c. Advantages of ADRs: Buyers pay no currency-conversion fees, and there are no minimum purchase requirements. Also, companies offer ADRs in the United States to appeal to mutual funds because U.S. investment laws limit the amount that a mutual fund can invest in companies not registered on U.S. exchanges. 2. Venture capital a. Venture capital is financing obtained from investors who believe that the borrower will experience rapid growth and receive equity (part ownership) in return. b. Venture capitalists invest in new risky ventures because they can generate large returns on investment. c. The venture capital industry has become global. 3. Emerging stock markets a. Companies in countries with emerging stock markets face two problems. First, emerging stock markets are often volatile. i. Investments can be either hot money—money that can be quickly withdrawn in a crisis—or patient money—investment in factories, equipment, and land that cannot be withdrawn easily. ii. Large and sudden sell-offs of equity are signs of market volatility that characterize emerging stock markets. Large sell-offs occur because of uncertainty regarding the nation’s future economic growth. b. Second is the issue of poor market regulation. i. Large local companies can wield influence over their domestic stock markets; if domestic shareholders dominate such exchanges, international investors may hesitate to enter. ii. The problem lies in regulation that favors insiders over international investors. C. Internal Funding Ongoing business activities and new investments can also be financed internally with funds supplied by the parent company or its international subsidiaries. 1. Internal equity, debt, and fees a. Time is needed for new subsidiaries to become financially independent; so, parent companies finance operations. b. Subsidiaries often obtain capital by issuing equity solely to the parent, which benefits from an appreciating share price. c. Parent companies lend money to subsidiaries during the start-up phase and for new investments; subsidiaries with excess cash lend money to parent or sister companies when they need capital. 2. Revenue from operations (See Figure 15.2) a. Revenue is earned from the sale of goods and services; this source of capital is the lifeblood of international companies and their subsidiaries. b. For long-term success, a company must generate sufficient revenue to sustain day-to-day operations; outside financing is required only to expand operations or to survive lean periods. c. A transfer price is the price charged for a good or service transferred between a company and a subsidiary. Companies set subsidiaries’ transfer prices high or low according to their own goals (e.g., to minimize taxes in a high taxation country). D. Capital Structure 1. A company’s capital structure is the mix of equity, debt, and internally generated funds that it uses to finance its activities. 2. Firms try to strike the right balance among financing methods in order to minimize the cost of capital and risk. 3. Debt requires periodic interest payments to creditors such as banks and bondholders. If the company defaults on interest payments, creditors can sue the company or force it into bankruptcy; preferred stock equity holders can force bankruptcy because of default. 4. Companies prefer not to carry so much debt in relation to equity that it increases its risk of insolvency. 5. Debt appeals to companies because interest payments are deducted from taxable earnings—lowering the taxes a firm must pay. 6. National restrictions can influence the choice of capital structure. Restrictions include limits on international capital flows, the cost of local versus international financing, access to international financial markets, and currency exchange controls. 7. Choice of capital structure for subsidiaries is highly complex. VI. A FINAL WORD Whether an international company’s production activity involves manufacturing a product or providing a service, it must acquire many resources before beginning operations. It needs to resolve such issues as where it will get raw materials or components, how much production capacity it needs, whether to construct or buy new facilities, the size of service centers, and where it will get financing. The answers to these questions are complex and interrelated. Quick Study Questions Quick Study 1 1. Q: Assessing a firm’s ability to produce enough output to satisfy demand is called what? A: Capacity planning is the process of assessing a company’s ability to produce enough output to satisfy market demand. If capacity is inadequate to fulfill forecasted demand, capacity must be expanded, and vice-versa. This affects production strategy. 2. Q: Location economies can arise from the optimal execution of what? A: Location economies are economic benefits derived from locating production activities in optimal locations. Location economies can involve practically any business activity that companies in a particular location do very well, including performing research and development or providing financial services. The key point is that each production activity generates more value in a particular location than could be generated anywhere else. 3. Q: What typically determines the process that a firm uses to create its product? A: Process planning is deciding the process that a company will use to create its product. Availability and cost of labor in the local market is crucial to process planning. An important production issue in strategic planning is deciding whether the production process will be standardized for all markets or adapted to manufacture products modified for different markets. Low-cost leadership typically dictates automated, standardized production in large batches. Differentiation often requires smaller batches and much product tailoring or adaptation. Quick Study 2 1. Q: Vertical integration is the process by which a company extends its control over what? A: Vertical integration is the extension of company activities into stages of production that provide a firm’s inputs or absorb its outputs. Vertical integration can influence the make-or-buy decision through its advantages of lower production costs, allowing greater control over production, making product modifications without persuading a supplier, and keeping key technology in-house. 2. Q: Why might a company make a product in-house rather than buy it? A: Companies often decide to make a product rather than buy it in order to reduce total costs. In general, companies will undertake in-house production when they can produce for less cost than they can buy on the open market. Also, making rather than buying can give managers greater control over raw materials, product design, and the production process itself—all of which are important factors in product quality. Companies often undertake in-house production when persuading a supplier to make special modifications to a product on their behalf is difficult. Companies also make rather than buy when buying from a supplier requires providing them with a key technology. 3. Q: Why might a firm buy a product rather than make it in-house? A: Outsourcing is the practice of buying from another company a good or service that is not central to a company’s competitive advantage. One reason why a company may buy rather than make a product is to lower risk. Political risk is quite high in certain markets. Sometimes the government of an intensely nationalistic nation might decide to expropriate or nationalize industries without concern for the interest of an international company. Although companies can shield themselves from such risks by outsourcing, international outsourcing can result in longer delivery times that can increase the probability that products will be delayed in transport. Another reason to buy is to gain flexibility. Making an in-house product that requires large investments in equipment and buildings often reduces flexibility. Companies that buy products from one or more outside suppliers retain or gain flexibility. Finally, companies can gain a great deal of power in their relationships with suppliers simply by becoming important customers. Quick Study 3 1. Q: Why might a company strive for quality improvement? A: Companies strive toward quality improvement for two reasons. First, quality products help keep production costs low because they reduce waste in valuable outputs, reduce the cost of retrieving defective products from buyers, and reduce disposal costs due to defective products. Second, some minimum level of acceptable quality is an aspect of every product today. 2. Q: The international certification that a company gets when it meets the highest quality standards in the industry is called what? A: The International Standards Organization (ISO) 9000 is an international certification that companies get when they meet the highest quality standards in their industries. To become certified, companies must demonstrate the reliability and soundness of all business processes affecting the quality of their products. 3. Q: Under what conditions might a company reinvest earnings in its operations? A: If new and potentially profitable opportunities present themselves in the market, managers might decide to expand operations. In general, the reinvestment decision is based on four conditions. Companies must decide whether to continue investing in markets requiring long payback periods. Firms must decide whether increasing local investment is necessary merely to maintain market share and its competitive position. Companies usually decide to reinvest when a market is experiencing rapid growth. Companies may try to reduce international competition by investing in the home markets of international competitors. All companies have a limited supply of resources at their disposal to invest in current operations or new endeavors. There are three reasons why companies decide either to scale back or to eliminate operations abroad. Companies scale back their international investments when it becomes apparent that making operations profitable will take longer than expected. Problems in the political, social, or economic sphere can force companies either to reduce investment or eliminate operations altogether. Companies invest in those operations offering the best return on their investments. That policy often means reducing investments or divesting operations in some markets even though they may be profitable, in order to invest in more profitable opportunities elsewhere. Quick Study 4 1. Q: In general, through what source do companies obtain financial resources? A: Companies can obtain financial resources through one of three resources: (1) borrowing (debt), (2) issuing equity (stock ownership), or (3) internal financing. 2. Q: A common way for non-U.S. companies to access U.S. capital markets is to issue what? A: Companies issue stock outside the home country primarily to access pools of investors with funds that are unavailable domestically. A non-U.S. company can list shares directly in the United States by issuing American Depository Receipts (ADRs)—certificates that trade in the United States and represent a specific number of shares in a non-U.S. company. There are three main advantages of ADRs. First, investors who buy ADRs pay no currency-conversion fees. Second, there are no minimum purchase requirements for ADRs, as there sometimes are for shares of a company’s stock. Third, companies offer ADRs in the United States to appeal to mutual funds. Investment laws in the United States limit the amount of money that a mutual fund can invest in the shares of companies not registered on U.S. exchanges. 3. Q: A firm’s mix of equity, debt, and internally generated funds that it uses to finance its activities is called what? A: A company’s capital structure is the mix of equity, debt, and internally generated funds that it uses to finance its activities. Firms try to strike the right balance among financing methods in order to minimize the cost of capital and their risk. Ethical Challenges You are special assistant to the governor of a southeastern U.S. state in which unemployment (especially in rural areas) is well above the national average. After nearly three years in office and elected on a pledge to attract industry and create jobs, the governor is concerned. Because he respects your moral stance on issues, the governor has come seeking your insights. A European automobile maker has just told the governor that your state is on its short list of potential sites for a new manufacturing facility. The facility is expected to employ about 1,500 people, with plenty of spillover effects on the wider economy. The governor informs you the European automaker expects significant incentives and concessions. The governor would like to offer some $300 million in tax breaks and subsidies in an effort to bring the new plant to the state. 15-5 What plan of action do you advise the governor to take? A: Student responses will vary. However, most students will believe attracting businesses, keeping them and getting them to expand operations often involves a providing tax incentives. 15-6 Would the outlay be an appropriate use of taxpayer money? Explain. A: When tax incentives are considered, the state and the local community stands to gain by the business coming. These benefits are tax revenues associated with added employees that are expected to either relocate to the state or be hired from the state’s existing population. If a new business buys a tract of land and builds a factory on it, the business increases the community’s property tax base. The factory adds value to the otherwise vacant land. The state might allow the business to pay a reduced property tax rate for the first few years the factory is open, which then would lower their tax liability while other operating costs run unusually high. With the factory expecting to employ 1,500 people, the state will also experience an increase in sales tax revenue because of the increase in business activity. All of which, will lead to reduction in the levels of unemployment. 15-7 Would you feel comfortable defending your advice if it were to become public? Explain. A: A similar scenario actually occurred in Alabama when Mercedes signed a deal to open its new state-of-the-art manufacturing facility. Taxpayer money often fosters economic development packages in large and small communities throughout the United States. Many jobs are subsequently created as a result of the influx of new businesses. It can be a proper use of taxpayer money based on the rationale that a new facility brings new jobs plus increased activity for the local real estate market, retail businesses, health care providers, and the local educational facilities. Teaming Up Financing Project. Suppose you and several classmates are a team assembled by the chief financial officer of a consumer-goods company based in Mexico. Your company wishes to expand internationally but lacks the necessary financial capital. Your team’s task is to research the options. 15-8 What financing options do you think are available to your company? A: The company could obtain financial resources though three sources: (a) debt financing – the use of borrowed funds, (b) equity financing – the process of raising capital through the sale of stock in the business and (c) internal funding – funds coming from within the company from previous operations. ` 15-9 Considering the prevailing situation in the Mexican and international capital markets, why is each option feasible? A: In responding to this question, students will have to become aware of current financial and economic in Mexico at the time. They will have to be aware of interest rates in the U.S. and Mexico, and the value of the Mexico Peso in relation to the U.S. dollar. A slowdown in the availability of funds from the capital market would occur should interest rates increase, and/or the Mexican Peso depreciates in relation to the U.S. dollar. 15-10 Why are certain options off limits, given prevailing market conditions? A: Students should be sure to consider the current financial and economic conditions prevailing in Mexico at the present time. Options for financing can rapidly change depending on financial and economic conditions. Students should supply several financing options under different scenarios for the Mexican economy. Practicing International Management Case Toyota’s Strategy for Production Efficiency 15-13 Q: Chrysler engineers helped Toyota develop its Sienna minivan. In return, Toyota provided input on automobile production techniques to Chrysler. Why do you think Chrysler was willing to share its minivan know-how with a key competitor? A: Clearly, Chrysler felt that obtaining insight into Toyota’s production techniques outweighed the costs of giving Toyota engineering designs on a model that (as normally is the case) will be redesigned a few years down the road. However, insight into Toyota’s methods could give Chrysler a huge advantage over its domestic rivals. 15-14 Q: Considering financial, marketing, and human resource management issues, what other benefits do you think Toyota obtains from its production system? A: Toyota must feel it can outdo the competition. Based on its past performance of gaining a cost advantage in its other products, Toyota might also gain a cost advantage in minivans and put a great deal of pressure on Chrysler. -