Profit margin, process improvement and capacity decisions in global manufacturing

We study two strategies that a company may employ for competing in global markets: high profit margin; and investment in process improvements. The strategy of high profit margin is associated with aggressive investment in new plants worldwide; and the strategy of process improvements is associated with increasing the effective capacity of existing plants, reducing manufacturing cost and increasing the plant's life cycle. Such plant decisions are complicated by country-specific parameters, e.g. tariff rate, tax rate, transportation cost and economic growth rate, which may vary widely from one country to another. We construct a simulation model that uses non-linear relationships among decision variables to explore insights, e.g.: (i) global conditions that would be synergistic with each of the two strategies; (ii) level of investment that would be justified in newly industrialized countries, in relation to the industrially mature countries; and (iii) shifts in investment in time and their relationship to the competitive strategies.