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Global Logistics and Purchasing*
Global Logistics and Purchasing*

Considering about global production, some of the core decisions to be made, include where to produce, strategic role of any production site used and make or buy decision. Additionally, two key supply chain functions should be focused.


According to Hill and Hult (2017), logistics is the part of the supply chain that plans, implements and controls the effective flows and inventory of raw material, component parts and products used in manufacturing.

The core activities performed in logistics include

  • global distribution center management
  • inventory management
  • packaging and materials handling
  • transportation
  • reverse logistics

Global distribution center or warehouse is a facility that positions and allows customization of products required for delivery, to worldwide wholesalers or retailers or directly to consumers anywhere in the world. These distribution centers are used by manufacturers, importers, exporters, wholesalers, retailers, transportation companies and other agencies. A distribution center is at the center of the global supply chain. This is mainly due to the order processing and fulfillment part.

Hence, distribution centers are the foundation of a global supply network. They allow either a single location or satellite warehouses to store quantities and assortments of products. They also allow for value added customization. Thereby, they should be located strategically in the global marketplace with the consideration of the total labor and transportation cost.

Global inventory management is the decision making process related to raw materials, work-in-progress and finished goods for a MNC. These decisions include quantity of inventory to hold, what form to hold in and where to locate it in the supply chain.

For example, Toyota has about 8.7% of its assets in terms if inventory. A company’s global inventory strategy must effectively trade off the service and economic benefits of making products in large quantities and positioning them near customers against risk of having too much stock.

Packaging is in all shapes, sizes, forms and uses. This has three forms.

  • Primary packaging holds the product.
  • Secondary packaging is designed to contain several primary packages.
  • Transit packaging is the pallet or unit load used to transport both primary and secondary packaging.

Thereby, regardless of where the product is in the global supply chain, packaging is intended to achieve a set of multi layered functions.

  • Perform
    • Ability to handle the product during transport
    • Ability to be stored for typical lengths of time for a particular product category.
    • Provide convenience expected both by supply chain partners and end customers
  • Protect
    • Ability to contain the product’s properly
    • Preserve the products to maintain their freshness or newness
    • Provide the necessary security and safety to ensure that the products reach their end destination in their intended shape
  • Inform
    • Give logical and sufficient instructions for the use of the products inside the package
    • State compelling product guarantee
    • Inform about service for the product- if and when it is needed


This refers to the movement of raw material, component parts and finished goods throughout the global supply chain. This typically represents the largest percentage of any logistics budget.

The primary drivers of transportation rates and the resulting aggregate cost are distance, transport mode, size of load, load characteristics and oil prices. In this case, the transport cost overseas is highly affected by the economies of scale. Therefore, larger shipments are usually less expensive than smaller shipments. Characteristics of the shipment also matters. For example, the product density, value, its perishability, potential for damage should be considered.

Reverse logistics is the process of planning, implementing and controlling efficient flow of inventory, from the point of consumption to the origin. Thereby, reverse logistics aims to optimize the after market activity. This saves both money and environmental resources. Thereby, it is critical for global supply chains.


In the case of purchasing, first an appropriate strategy should be developed for global purchasing and then the type of purchasing strategy should be selected.

In this case, there are 5 levels from domestic to global.

  • Level 1- Domestic purchasing
  • Level 2 & 3- International purchasing
  • Level 4 & 5-Global purchasing

Accordingly, there are 4 main choices of purchasing strategies.

  • Domestic internal purchasing
  • Global internal purchasing
  • Domestic external purchasing
  • Global external purchasing

The above strategies come into the international arena with a set of generic options. These include

  • Outsourcing(External purchasing)
    • Buying products or services from one of its suppliers that produces them somewhere else.
  • In-sourcing(Internal purchasing)
    • Producing internally
  • Off shoring(Global external purchasing)
    • Buys from one of its suppliers producing outside the home country
  • Off shore outsourcing(Global external purchasing)
    • Buying from a supplier other than the one in which the product is manufactured
  • Near shoring (Facilitates global external purchasing)
    • Transfers technology processes to suppliers in nearby countries
  • Co-sourcing
    • Employees inside the firm and external suppliers both are used to perform the tasks

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How Vestel went global*
How Vestel went global*

The core of Vestel’s business is to design and manufacture products on a contract basis. This firm does not plan to compete in the European market with its own brand. The main competencies of this firm include assembly, outsourcing, logistics. Vestel is a supplier of B-market consumer electronics. They target the brand owners and retailers.

Vestel is successful in competition with Chinese television manufacturers because of the flexibility of manufacturing, delivery costs and delivery items. Considering Vestel’s desire to enter Europe, Vestel with an operating profit margin of 7.8% may find it hard in Europe. Considering the productivity, it is higher in Turkey than in China, but there are labor cost differences which do not give a competitive advantage of entering Europe.

Also, since majority of TV sales are for flat screen technology, there should be a reliable source of flat screens and controls. So, delivery times should be cut from 1.5 to 2 months to 1-2 weeks or a Chinese competitor should build a plant in or closer to Europe.

An alternative will be to build or acquire a brand or brands in the A market and gain the earning from the brand, rather than from the manufacturing process.

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Elixir’s international steps*
Elixir’s international steps*

Elixir technology’s main product is Elixir Report which is designed for both software developers and end-users. This product forms part of the reporting function for customer companies. The core competencies of Elixir include code writing in Java, adaptation of the product for different languages and cultures and professional support service provision.

Elixir mainly serves a broad spread of companies, from small to large including software developers, governments as well as companies. Elixir localized its products by translating its software into customers’ languages. Furthermore, Elixir software is aligned with the cultural context without being specific what that means.

The localization of Elixir software was done by developing their own understanding of the market or partnering with somebody who already understands the cultural context. Also, Elixir occupied a niche in flexible reporting software, customized to local markets. This was done by using a product that was 50% cheaper than its competitors.

Elixir’s customers were IT directors of companies and government departments. However, Elixir did not follow cost leadership and differentiation across the market. Yet, the feature of bi-directional text writing seems to have given it one unique part of the market.

Elixir’s strategy was to be cheap and differentiated. With this, the need for cost competitiveness and localization was also seen. Thereby, they used a multi domestic strategy.

Elixir’s entry into the international market, specially to Japan was made possible through its initial partner who was able to communicate in English and was already selling complementary products. The firms were sensitive to the local market and therefore used own branding.

However, Elixir was less successful in China. This is mainly because Chinese partners wanted something for nothing. Thereby, when trying to enter Middle East, Elixir wants an active partner.

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Educate for HIV and save a life!
Educate for HIV and save a life!

HIV is a tiny virus carried in the blood in male and female sex fluids. HIV infected fluids can enter a person’s body through breaks in the skin and enter the blood.

Tiny poly cells are present in the blood to protect a person from germs that cause infections such as TB and flu. These poly cells are called CD4 cells. HIV harms the body by attacking the CD4 cells and making the body more prone to other illness causing germs.

The good news is that a person with HIV who lives a healthy lifestyle, gets regular medical care and takes medication, can live for 25 years or more after infection. However, the individual who fails to take these steps will experience a series of infections; lose weight and usually die within 10 to 12 years.

A person who has HIV but does not get treatment by a doctor or nurse will go through the following stages.

Acute HIV infection at some time during the first month or so. After HIV enters the body, the person may have a flu-like illness. Symptoms may include fever, a tea rash headache, swollen lymph nodes and sore throat.

Some people have no symptoms at all. The viral levels at this time are very high because at first, the body is unable to fight the virus. During this time, the HIV antibody test is negative. This is called the window period.

Within about one to two months, the body begins to produce antibodies to fight the virus and viral levels drop. The rapid HIV antibody test detects these antibodies.

A blood test can be done in the hospital or clinic to measure how many CD4 cells a person has. This test is called the CD4 count. During this time of acute HIV infection, the CD4 count goes from a normal level of 1200 down to about 900.

The viral levels at this time are very high because at first the body is unable to fight the virus within about one to two months. The body begins to produce antibodies to fight the virus and viral levels drop after the initial infection.

The body can effectively fight the HIV for about five years. This period is called stage 1. During this time, the CD4 poly cell levels drop from about 900 to 500.

At the same time, the HIV levels in the blood slowly rise. Although generally symptom-free, a person in this stage can still pass the virus on to others from about six to nine years.

After infection, a person is in stage two of HIV infection. During this phase, the CD4 count may go down from about 500 to 350. At the same time, the HIV levels in the blood slowly rise, swollen glands appear in the neck, armpits or in the groin. A person may feel weak and tired and experience fevers and weight loss.

The number of CD4 cells is now so low that other germs that cause infections find it easier to invade the body. This makes it so prone to coughs and colds, skin rashes, shingles, fungal nail infections. And, mouth sores become more common in this stage.

After about nine to eleven years of HIV infection, the CD4 count drops below 350 and the person enters stage 3. HIV viral levels continue to increase. In addition to all areas, sometimes listed a person may have abdominal pain, ongoing diarrhea, cough and headaches.

Additionally, painful blisters of the mouth or genitals may happen again and again within about 11 or 12 years of HIV infection. Without medical treatment, a person enters stage four.

Another name for stage 4 is AIDS. The CD4 count drops below 200 and the body begins to lose its long battle against HIV. Viral levels are high in the blood. Severe life-threatening infections or care in this stage.

ARVs work better if started before the later stages of HIV. The decision of when to start ARVs is made by your health care provider. These can dramatically reduce the HIV in the blood.

Other medicines may be prescribed to prevent and treat other infections such as TB. It is very important that once ARVs are started that they are taken as directed. If doses are missed or the ARV stopped entirely, the ARVs may stop working against the HIV in the future. The good news is that ARVs can give a person many more healthy years of life.

HIV tests used to take weeks. Now, it’s just a minute.

Three little vials and a drop of blood is all it takes. For a clear diagnosis, a community clinic performs 9,000 HIV tests on people a year. In Canada, the demand is as strong as ever and getting these kits on pharmacy shelves and in people’s hands could meet the need.

A real option of a fast test but also a private test and something they can get outside the health authorities. According to research and health institutes, Canada’s HIV numbers aren’t going down, there’s a new diagnosis every four hours. It’s an infection rate similar to the European Union’s.

But, Canada is falling behind high-income countries like Germany, Sweden and Australia and some Canadians are more vulnerable than others. Black and indigenous people are less than 9% of Canadian population. Yet, they make up almost half of new HIV cases.

Experts estimate as many as a quarter of people with HIV have not been tested for it. Stigma is part of the problem. People don’t want to go to a overcrowded sexual health clinic to get tested.

People still fear facing homophobia from their doctor. These things can be addressed with a home self testing kit inside your self testing kit. That’s why the European Union approved the same take home tests for sale three years ago.

Health Canada wants clinical trial evidence from Canada before it does the same. The researcher heading that trial says Canada is playing catch-up not just in approving the tests for sale but in attitudes towards HIV self testing.

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International Entry Strategies*
International Entry Strategies*

Firms can use 6 different modes to enter a foreign market. Each entry mode is both advantageous and disadvantageous. By comparing each of them, managers need to decide the best mode of entry.


This mode of entry avoids substantial costs of establishing manufacturing operations in the host country. Also, it may help achieve experience curve and location economies.

Furthermore, by manufacturing the product in a centralized location and exporting it to other national markets, the businesses may realize substantial economies of scale from its global sales volume.

However, if lower cost locations for manufacturing the product are found in the host country, exporting will be a failure. Therefore, manufacturing must occur in a place where the mix of factor conditions are most favorable from a value creation perspective. Thereafter, the products can be exported from that location.

For example, many U.S. electronic firms have moved some of their manufacturing to the Far East due to the availability of low-cost, highly skilled labor. They then export to the rest of the world.

Another problem with exporting is the high transport costs which can make exporting uneconomical, specially for bulk products. One way to solve this is is to manufacture the required bulk products regionally. Thus, they can realize economies of scale.

But, there is also the tariff drawback. That includes the tariff barriers which can make exporting uneconomical. Also, with exports the distribution company may not provide a good service as the manufacturer.

The main solution for these problems are to set up wholly owned subsidiaries in foreign nations. They will handle the local marketing and sales .

Turnkey Projects

In this type of entry, the contractor agrees to handle every detail of the project for a foreign client. At completion of the contract, the foreign client is handed the ‘key’ to a plant that is ready for full operation.

Thus, turnkey projects are a means of exporting process technology to other countries. These are most common in the chemical, pharmaceutical, petroleum refining and metal refining industries.

This entry mode is beneficial because it is a way of earning great economic returns from the technology and know how. This is specially beneficial when FDI is limited by host government regulations.

However, this entry mode can be risky specially under unstable political and economic environments. But, since most of the firms that enter in this way do not have a long term interest in the foreign country, it can be both beneficial and disadvantageous.

The next problem with this entry mode is that the firm that enters in this manner may create a competitor. For example, most of the Western firms that sold oil-refining technology to firms in the Middle East, now find themselves competing with these firms in the world oil market.

Also, if the firm’s process technology is a source of competitive advantage, then selling this technology through a turnkey project means also selling competitive advantage to potential competitors.


This is an arrangement where a licensor grants the rights to intangible property, to another entity (licensee) for a specified period. In return, the licensor receives a royalty fee from the licensee.

For example, Xeros licensed its xerographic know how to Fuji Xerox. In return, Fuji Xerox paid Xerox a royalty fee equal to 5% of the net sales revenue that Fuji Xerox earned from the sales of photocopiers based on Xerox’s patented know how.

The key benefits of this entry mode is that, the licensee puts up most of the capital necessary to get the overseas operation going. Therefore, the firm doesn’t have to bear the development costs and risks associated with opening a foreign market.

Therefore, this entry mode is very attractive for firms lacking the capital to develop operations overseas. It is also attractive when a firm is unwilling to commit substantial financial resources to an unfamiliar or politically volatile foreign market.

This entry mode is also used by firms that wish to participate in a foreign market, but are prohibited from doing so, due to barriers to investment. This is one major reason behind Fuji Xerox.

That is, Xerox wanted to participate in the Japanese market. But, it was prohibited from setting up a wholly owned subsidiary by the Japanese government. Therefore, Xerox set up the joint venture with Fuji and then licensed its know how to the joint venture.

Another instance in which licensing is used is when a firm possesses some intangible property that might have business applications, but they do not want to develop those applications themselves.

For example, Bell Laboratories at At&T originally invented the transistor circuit in the 1950s. But At&T decided that it did not want to produce transistors. So, it licensed technology to a number of other companies such as Texas Instruments.

Similarly, Coca Cola licensed its trademark to clothing manufacturers. Harley Davidson licenses its brand to Wolverine World Wide to make footwear.

However, licensing has several drawbacks. First, licensing does not give a firm the tight control over manufacturing, marketing and strategy that is required to realize experience curve and location economies. This is because, in this entry mode, the licensee sets up its own production operations.

Also, licensing limits a firm’s ability to coordinate strategic moves across countries by using profits earned in one country to support competitive attacks in another.

Next, when technological know how is licensed, a firm can quickly lose control over its technology. For example, RCA corporation once licensed its color TV technology to Japanese firms including Sony and Matsushita. These firms quickly assimilated the technology, improved on it and entered the U.S. market.

This problem can be minimized by entering into a cross licensing agreement with a foreign firm. This is where valuable intangible property is licensed to a foreign partner. In this case, in addition to a royalty payment, the firm also requested that the foreign partner license some of its valuable know how to the firm.

Thus, cross licensing enables the firms to hold each other hostage. This reduces the probability that they will behave opportunistically towards each other.

Also, the risk of licensing can be reduced by linking an agreement to license know how with the formation of a joint venture in which the licensor and licensee takes important equity stakes.


This is similar to licensing. However, in this there are long term commitments than licensing. This entry mode is specially a form of licensing in which the franchiser not only sells intangible property to the franchisee, but also insists that the franchisee agrees to abide by strict rules.

This entry mode is primarily used by service firms. For example, Mc Donalds.

With this mode of entry, firms are relieved of many costs and risks of opening in the foreign market on its own. But, franchising may inhibit the firm’s ability to take profits out of one country, to support competitive attacks in another.

Also, there is a problem of quality control. However, this can be sorted by setting up a subsidiary in each country in which the firm expands. Then, the subsidiary will have the rights and obligations to establish franchisees in that country.

Joint ventures

This entails establishing a firm that is jointly owned by two or more other independent firms. The key benefit of this is that firms benefit from the local partner’s knowledge of the host country’s competitive conditions, culture, language, political systems and business.

Also, when the development costs of opening a foreign market are high, a firm might gain by sharing these costs or risks with a local partner. Furthermore, in many countries, political considerations make joint ventures the only feasible entry mode.

Based on research, joint ventures with local partners face a low risk of being subject to nationalization or adverse government interference. This is mainly because local equity partners may have some influence on host government policy.

However, a firm that enters into a joint venture risks giving control of its technology to its partner. However, joint venture agreements can be constructed, to minimize these risks.

  • Hold majority ownership in the venture, which allows the dominant partner to exercise greater control over its technology. Yet, it is difficult to find a foreign partner who is willing to settle for minority ownership.
  • “Wall off” from a partner technology that is central to the core competence of the firm, while sharing other technology.

Another problem with joint ventures, is it does not give a firm the tight control over subsidiaries that it might need to realize experience curve or location economies. Further, it does not give a firm the tight control over a foreign subsidiary, which might be needed to engage in coordinated global attacks against its rivals.

For example, when Texas Instruments established semi conductor facilities in Japan, the main aims were to check the Japanese manufacturers’market share and then limit their cash available for invading the global market. They used global strategic coordination.

To implement this strategy, TI’s subsidiary in Japan had to be prepared to take instructions from corporate head quarters regarding competitive strategy. This strategy also required the Japanese subsidiary to run at a loss if necessary.

Also, the shared ownership arrangement in joint ventures lead to conflicts and battles for control between the investing firms in most cases. Such conflicts are usually triggered by shifts in the relative bargaining power of venture partners. However, these problems have been limited by some joint ventures by entering into joint ventures in which one partner has a controlling interest.

Wholly owned subsidiaries

In a wholly owned subsidiary, the firm owns 100% of the stock. This can be done in two ways.

  • Set up a new operation in that country(greenfield venture)
  • Acquire an established firm in the host nation and use that firm to promote its products

One advantage of this entry mode is, when a firm’s competitive advantage is based on technological competence, this mode reduces risk of losing control over that competence.

Also, this entry mode gives a firm tight control over operations in different countries, which is usually required to engage in global strategic coordination.

Next, this entry mode allows realization of location economies and experience curve economies. It even gives a firm 100% share in the profits generated in a foreign market.

However, this is the most costly method of serving a foreign market, in terms of capital investment. This is because the firm must bear the full capital costs and risks of setting up overseas operations.

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Levers of Global strategy*
Levers of Global strategy*

Global strategies are usually multi-dimensional. They can include a variety of levers depending on the company and its situation. A global strategy network that has been used extensively for a couple of decades is the framework presented by George Yip and Tomas Hult in Total Global Strategy(2012).

This framework includes 5 levers that drive the locality or globalness of the company.

Market participation

This involves the choice of countries in which to operate and the level of activity that the company decides to engage at in each country.

Products/ Services

This involves the extent to which a multi national business offers the same or different products or services in different countries.

Supply chain management

This involves choosing where to locate each of the operational activities that constitute the supply chain.


This involves the extent to which a multinational business uses the same marketing mix

Competitive moves

This involves the extent to which a multi national business makes competitive moves in different countries as part of a global competitive strategy.

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Evolution of international business strategies*
Evolution of international business strategies*

According to Achilles, when competitors emerge, if managers do not take steps to reduce their costs, efficient global competitors might outride them.

For example, let us consider the evolution of international business strategy at Procter and Gamble(P&G).

P&G was founded in 1837. Today, P&G has annual sales in excess of $80 billion, out of which about 54% are generated outside the U.S. P&G sells more than 300 brands like Tide, Pampers, Crisco to about 180 countries.

Initially, P&G developed new products in Cincinnati and relied on semi autonomous foreign subsidiaries to manufacture, market and distribute those products in different nations.

In many cases, foreign subsidiaries had their own production facilities and did the packaging, brand name, marketing message to local tastes and preferences. For years, this strategy delivered a steady stream of new products and reliable growth in sales and profits.

By 1990s, profit growth at P&G was slowing. This was mainly because the costs were too high due to duplication of manufacturing, marketing ad administrative facilities in different national subsidiaries.

For example, products produced in Great Britain could not be sold economically in Germany due to high tariffs on imports into Germany. Also, retailers who bought from P&G, like Walmart, Tesco, were demanding for low prices since they were growing.

Thereby, in 1990s, P&G embarked in a major reorganization in order to control its cost structure. About 30 manufacturing plants were shut around the globe and 13000 employees were laid off. With this being not successful enough, P&G launched another re-organization with the goal of Örganization 2005″”.

In this new re-organization, the company replaced the old organization which was based on countries and regions and replaced it with one based on seven self contained global business units, ranging from baby care to food products.

Each business unit rationalized production, concentrating in fewer larger facilities, trying to build global brands wherever possible. This eliminated marketing differences between countries and accelerated development and launch of new products. In the meantime, the costs savings from the factories they closed and employee lay offs, were used to reduce prices and increase spending on marketing. This strategy worked out.

For most of the 2000s, P&G reported strong growth in both sales and profits. Significantly, P&G’s global competitors like Unilever, Colgate were struggling during the same period.

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Choosing international strategies*
Choosing international strategies*

When going international, pressures for local responsiveness imply that it is difficult for a firm to realize the full benefits from economies of scale, learning effects and location economies.

For example, Ford, Honda, Toyota pursue a strategy of establishing top to bottom design and production facilities in Japan, Europe, America.

Also, due to pressures for local responsiveness, it may not be possible to leverage skills and products associated with a firm’s core competencies from one nation to another.

For example, despite being labelled ‘poster child’, Mc Donalds customizes its product offerings to account for national differences in tastes and preferences.

In this case, when firms compete internationally, they can make us of four main strategies.

Global standardization strategy

Firms following this strategy focus on increasing profitability and profit growth by obtaining maximum benefits from the cost reductions that come from economies of scale, learning effects and location economies. In this case, their strategy is a low cost global one.

Firms that follow this strategy try to avoid customize their product offering and marketing strategy, to local conditions because customization involves shorter production runs and duplication of functions.

Firms following this type of strategy prefer to market a standardized product worldwide so that they can benefit the maximum benefits from economies of scale and learning effects.

This strategy is best when there are strong pressures for cost reductions and demands for local responsiveness are minimal. These conditions are there in markets where there are products that serve universal needs.

Localization strategy

This strategy focuses on increasing profitability by customizing the firm’s goods or services. This is done in order to ensure that they provide a good match to tastes and preferences and cost pressures are not intense.

By doing this, the firm increases the value of that product in the local market. However, because it involves some duplication of functions and smaller production runs, customization limits the ability of the firm to capture the cost reductions associated with mass producing a standardized product for global consumption.

Transnational strategy

Researchers, Christopher Bartlett and Sumantra Ghoshal argue that in the present global environment, competitive conditions are very intense to survive.

Accordingly, firms must realize location economies and experience effects, leverage products internationally and transfer core competencies and skills within the company and pay attention to pressures for local responsiveness.

Thereby, a transnational strategy where low costs along with localization is to be adopted. However, adopting this strategy has become a major problem for most of today’s companies.

For example, Caterpillar redesigned its products to use many identical components. Also, they augment the centralized manufacturing of components with assembly plants in major global markets. At these plants, Caterpillar adds local product features.

Caterpillar started to pursue this strategy in the 1980s and it has been very successful.

International strategy

This strategy is where products first produced in their domestic market are sold internationally with minimal customization. In this case, the firm is selling a product which serves universal needs.

These firms tend to centralize product development functions at home but tend to establish manufacturing and marketing functions in each major country or geographic region in which they do business.

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All pot bellies are not beer bellies
All pot bellies are not beer bellies

Those distinctive Santa Claus pot bellies that make guys look a little bit like they’re pregnant, are not caused by beer alone. Scientists from NYU and UC say, it’s a myth, there’s nothing special or magical about beer that causes a special beer gut. Alcohol is alcohol and your body can’t tell the difference whether it’s beer, wine or hard alcohol.

The reason why some beer drinkers get a beer belly comes down to a few other factors. First, the serving size of a beer is 12 to 16 ounces. A glass of wine is 5 to 6 ounces and a shot is only 1 to 2 ounces.

So beer is often consumed in higher quantities than other types of alcohol and so you’re consuming more calories. There are also lifestyle factors at play like poor diet. You often see beer served alongside foods like sausages, hamburgers and pizza. A very poor diet with or without beer can alone cause the pot belly and you’re even more prone if you’re over 35 and or if you’re male.

After 35 years, metabolism slows down. You can’t eat as much as you used to. This sounds terrible and this is why some older folks put on weight. They don’t react to their slower metabolism.

You also don’t really see pop buildings in women and that’s because women tend to store fat in their hips, their thighs and their booties instead of their waist. But, if you’ve ever encountered an authentic belly; so big and round that you can rest a drink on it, you know there’s something a little different going on there.

It’s not squishy or jiggly. It’s kind of hard like you could pop it and you can’t just pinch the fat. There are two reasons for this. If they’re an extreme alcoholic, they could have ascites which is fluid retention usually caused by liver disease.

For most, beer bellies is because of visceral fat. This is a fat that lives not right under the skin like that squishy subcutaneous fat packed deeper in the body around the organs. It feels hard because it pushes against your abdominal muscles.

Visceral fat is higher risk health-wise because it can cause insulin resistance diabetes, high blood pressure, heart disease. Subcutaneous fat is generally less worrisome and everyone needs at least a little to cushion their nerves, blood vessels, your skeleton and to regulate body temperature.

Take sumo wrestlers as an example. These guys look really fat. They eat a ton of food but they’re healthier than others who look just like them. The wrestlers don’t have insulin resistance, heart disease or diabetes and it’s because they have a lot of subcutaneous fat and very little of that beer belly visceral fat.

In 2007, German scientists at the University of Leipzig, successfully isolated three genes that process body fat. When they looked at an individual’s gene expression, they could correctly predict if they would store more visceral fat or subcutaneous fat. This is why someone’s weight is an imperfect measure of their overall health and it’s also why the last beer belly contributor is genetics.

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Competitive Pressures in the global market*
Competitive Pressures in the global market*

Firms that are involved in the global competition, typically face two types of competitive pressures. These affect their ability to realize location economies and experience effects, to leverage products and transfer competencies and skills within the enterprise.

Pressures for cost reductions

In order to respond to this type of pressure, a firm should try to lower the costs of value creation.

For example, a manufacturer might produce in large quantities a standardized product at an optimal location in the world. Or, a firm might outsource certain functions to low-cost foreign suppliers in order to reduce costs.

This pressure can be intense in some industries. For example in commodity type products industries, where meaningful differentiation on non-price factors is difficult and price is the main competitive weapon. This is specially the case for products that serve universal needs. Universal needs exist when the tastes and preferences of consumers in different nations are similar.

Competition is also high in industries where major competitors are based in low-cost locations. This is when there is persistent excess capacity and consumers are powerful with low switching costs.

This type of pressure has increased with the liberalization of the world trade and investment environment in recent decades.

Pressures to be locally responsive

Pressures for local responsiveness mainly arise from national differences in consumer tastes and preferences, infrastructure, accepted business practices and distribution channels and host-government demands.

Responding to this type of pressure mainly requires differentiating its products and marketing strategy from one country to another. In this case, businesses have to consider various types of differences.

Differences in consumers tastes and preferences

In this case, a firm’s products and marketing message must be customized to appeal to the tastes and preferences of local customers. This creates pressure to delegate production and marketing responsibilities to overseas subsidiaries.

A good case to understand this is the automobile industry in the 1990s. This industry moved towards the creation of “world cars”. In this what was expected was that global companies such as General Motors, Ford, Toyota will be able to sell the same basic vehicle over the world.

If successful, this strategy would have enabled automobile companies to reap significant gains from global scale economies. However, this strategy ran aground on the hard rocks of consumer reality.

For example, North American consumers show a strong demand for pickup trucks. But, European consumers purchase pickup trucks as utility vehicles and mainly only firms purchase them in Europe. Thereby, the product mix and marketing message needs to be tailored to consider the different nature of demand in North America and Europe.

However, some people argue that standardized consumer products are on the rise citing examples like Subway sandwiches, Mc Donald’s hamburgers, Coca Cola, Gap clothes, Apple iPhones and Micorosft’s Xbox.

Differences in Infrastructure and Traditional Practices

In order to fulfill this need, delegation of manufacturing and production functions to foreign subsidiaries could become necessary.

For example, in North America, consumer electrical systems are based on 110 volts whereas, in some European countries, 240 volt systems are standard. Hence, domestic electric appliances have to be customized for this difference in infrastructure.

Another example is the wireless telecommunications industry. A technical standard known as GSM is common in Europe while CDMA is more common in US and Asia. So, equipment developed for GSM will not work on CDMA network. Therefore, companies such as Nokia, Motorola, Samsung which manufacture wireless handsets and infrastructure such as switches, need to customize their product according to the technical standard prevailing in a given country.

Differences in distribution channels

This may make it necessary to delegate marketing functions to national subsidiaries.

For example, British and Japanese doctors will not accept or respond favorably to a U.S. style high pressure sales force. Therefore, pharmaceutical companies have to adopt different marketing practices in Britain and Japan compared with U.S. That is, soft sell vs hard sell.

Host Government Demands

For example, pharmaceutical companies are subject to local clinical testing, registration procedures and pricing restrictions.

Rise of regionalism

For example, the creation of EU market with a single currency, common business regulations, standard infrastructure results in the reduction of national differences among countries within the EU. Also, North America which includes US, Canada and Mexico.

If products can be standardized within a region, greater economies of scale can be achieved. Therefore, managers must make a judgement call about the appropriate level of aggregation given.

  • the product market they are looking at
  • nature of national differences and trends for regional convergence

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