Organizations need to create production strategies as they attempt to acquire financial and non-financial resources essential for the long-term progress of the organization. For example, the Toyota Company has its production units. The company has also entered into a partnership with organizations in different parts of the world. The company realizes the need to acquire financial resources to meet production-related objectives. The company aims to achieve objectives such as low-cost leadership and differentiation (Pearson, 2014).
An organization needs to analyze its capabilities to deliver goods demanded by the market. In the process, the company needs to analyze aspects such as labor laws and the pattern of production. For instance, the company may decide to outsource its products depending on the ability of the subcontractor to maintain the quality of the product (Pearson, 2014).
The production strategy depends on the factors such as the location of production units and market demands. The distance between the factory and the market is an important factor that can decide production strategy. Selection of the production location is also imperative, as different locations have diverse advantages and disadvantages. The company needs to select the most appropriate production location after surveying various regions. Centralized production enables the organization to monitor the transport cost. The company also benefits from decentralized production, as it is suitable to implement a diversification strategy (Pearson, 2014).
Organizations may concentrate on low-cost leadership and differentiation. Low-cost leadership involves large-scale production. This strategy aims to enhance the efficiency of the organization. On the other hand, a differentiation strategy can be expensive, as it is skill-based. At the same time, this method is known for its flexibility, as it is useful to face global business challenges. Low-cost leadership is efficient and cost-effective, but it may not be effective in enhancing the skills of the organization. Location plays an important role in enhancing the productivity and profitability of organizations, as any region has various advantages (Pearson, 2014).
The organization needs an effective purchase strategy. Firms need to purchase raw materials needed for the production of commodities. In addition, they also agree with other firms to obtain their cooperation for the production and distribution processes. The company can decide to buy commodities from other firms. In a few situations, companies benefit from this strategy. For instance, an organization lacks a competitive advantage in a product. In such a case, it makes sense to buy from companies, which specialize in the product (Pearson, 2014).
Organizations need to maintain quality to obtain the confidence of the customers. Toyota, for instance, follows the Total Quality Management (TQM) method to enhance the quality of its products. The quality of the company product is periodically monitored. Another method of maintaining quality is to approach a third party to obtain quality certification. For instance, ISO 9000 provides certification services (Pearson, 2014).
Organizations, while producing a commodity, need to implement a cost reduction strategy. For example, shipping and inventory costs can affect the cost strategy of the organization. The organization needs to analyze various expenditures while formulating a production strategy. Inventory cost refers to the expenditure incurred to store finished goods. The just-in-time method is used to reduce costs based on the demands of the customer (Pearson, 2014).
Organizations need to formulate an effective financial strategy. It enables the firm to take the most appropriate financial decisions. For instance, companies can decide to reinvest or divest. A reinvestment decision is taken when the investment is likely to yield expected returns. The divestment decision is based on the expectation of low returns from the investment. Regions affected by political unrest do not yield high returns. Reinvestment decisions should be supported by long-term returns on investment. Through divestment, the company can divert its funds to profitable ventures (Pearson, 2014).
Organizations require capital for different purposes such as creating an infrastructure, payment of salaries, and expansion of the business. They can borrow from domestic and foreign investors. Companies face challenges while borrowing from a foreign source, as they need to pay for currency exchange. Governments generally impose limits on the inflow and outflow of capital. Domestic funding is preferred. An American company, for example, can use American Deposits Receipts (ADR), to enhance its capital. A company can also use internal sources of revenue such as tangible assets to obtain loans. Companies need to avoid contact with risky financiers, who may demand their money at any time. Organizations benefit by depending on patient investors who can maintain a relationship with the organization in the long term (Pearson, 2014).
Reference
Pearson. (2014). International Business Management. Upper Saddle River, NJ: Pearson Education.