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The Greta Tohoku Earthquake and Tsunami had caused disruption on infrastructure and production capacity of Japan. This shock led to the following chain of events:-

• An abrupt drop on Japanese exports of both cars and spare parts to the USA
• Import of cars and spares from competitor markets like Mexico and Canada
• Non-availability of Japanese cars and spares in the US Market
• Overtime in production facilities of competitor companies and in Japanese plants outside Japan
• Questions for also raised on Just-in time production philosophy of Japanese to minimise inventory

A summary of the changes are elaborated in the sketch below.

Now, what are the steps that need to be taken to stabilize supply chain worldwide:-

1. Diversification of supply chain sources: The first and most important step towards stabilizing the supply chain is to diversify the same. The idea is to diversify the sourcing of spare parts from different geographical location.
2. Another important step towards stabilization of supply chain is to standardize the items as Dell did and keep an inventory of these standardized items. The Just-in time manufacturing can then be done for the inventory of standardised products to the final item.
3. Another important step towards standardization is the development of digital supply chain. This means that the sourcing, inventory, stock ordering and demand is all linked in a system. This will bring about greater coordination in the supply chain.

The chapter provided a number of reasons for holding inventory.  Pick two of these reasons that you believe can cause organizations the greatest amount of damage. Please use real-world examples if possible.

Ans. The chapter provides a number of reasons for holding inventory. However, this can lead to damage to organizations too. Some of the examples are as below:

1. Beauty Industry

Overstocking in the beauty industry leads to expired products in unrecyclable plastic packaging, causing both economic and environmental issues.

This has been studied specifically in the American Beauty Industry, which is the largest in the world. It is worth USD 80 million a year.

The American Beauty Industry works on the principle of building a community with their clients. In order to achieve this, beauty brands work on the concept of building a community particularly working on the right products, new launches and customised products that are readily available for purchase. To satisfy the demand, it is normal to have a high level of inventory in the stores and in the warehouses. This leads to excessive inventory on the shelf that need to be discarded at times as cosmetic products have a shelf life of 3 years or lesser. A relatively short shelf life combined with excess inventory can lead to warehouses full of expired makeup items in biodegradable case. This leads to loss of financial investment and also creation of non-biodegradable waste

The text elaborates the major air cargo hubs, which have developed over a period of time. Following are the details of why these places have become air cargo hubs:-

1. Hong Kong: Hong Kong has grown into one of the biggest air cargo hubs thanks to Chinese growth story. Hong Kong provides an excellent transhipment hub. Cargo mainly flies in from US or Taiwan and then flies out from Hong Kong to South East Asia, Central and Northern China. Hong Kong also acts as a great transhipment point for road and river transport to the manufacturing bae in China and for sea transport to Japan/ Taiwan and Europe. Fig.1 below summarizes the situation of Hong Kong

• Dubai: Dubai is another important air logistics hub. This hub in the UAE has one of the biggest important airline connections to the world through its own airline network, namely, Emirates. Emirates has one of the largest air connectivity networks in this world. Other reasons for Dubai to become an air logistics hub are:-
  • Strategic Geographic Location: Dubai is located between Asia, Africa and Europe. Goods manufactured in Asia are distributed to Africa, Europe and Russian commonwealth
  • Sea Routes: Dubai is also located on major route from Asia and Africa to Europe through the Suez Canal.
  • Multi-modal Transport: Dubai also has Multi-modal connectivity to other countries in the gulf via roads and ships. It is also connected by sea to other continents. The new Etihad railway is also being developed recently

• Anchorage: Anchorage is a city in the state of Alaska. Anchorage is a major air logistics hub. A number of flights from the US to Asia and back have operations halts at Anchorage. Anchorage is attractive to shippers because 90% of the industrialised northern hemisphere can be reached within 9.5 hours from Anchorage, allowing the carriers to transport from Beijing and Moscow eastward to London and Frankfurt westward. It is important to emphasis here that the stop over at Anchorage helps to fuel the aircraft mid-way which enables carrying more cargo to be carried.

Anchorage is also a hub for air cargo because of the kind of goods that are transported. The major items being transported are electronic items made in Taiwan and China into the US, which are light weight.

In summary, if one compares and contracts the reasons for development of the three air cargo hubs above, the following can be summarised

1. What are the major disadvantages of being transferred to the joint venture and becoming an employee of the venture?   Does it make a difference if it is a domestic or foreign? Why?

Ans. The major disadvantages of being transferred to the joint venture and becoming an employee of the venture are as follows:-

1. Uncertainty: The first major disadvantage in becoming part of a JV is that the new JV is generally has targets set in an uncertain environment specially if it is an overseas JV.
2. Lack of Clarity: One of the important disadvantages of becoming an employee of the joint venture is lack of clarity in terms of roles and responsibilities in the new JV company. The reason being the JV generally has a new management trying to achieve the new targets of the JV in an unknown untested environment. So, there is a lack of clarity in the roles and responsibilities.
3. Taxation Status: This is an important aspect when an employee becomes part of an overseas JV. The employees are transferred to JVs without fully understanding the taxation status of the JV and that of the employee once he is part of the JV in an overseas location. This at times could turn out to be a major disadvantage to the employee.
4. Closure of JVs: During the closure of the JV, the employees of the JV are left stranded at times with an uncertain future as both the JV partners refuse to take them back into the company often baling them for the failure.

It does a make a difference if it is a domestic or foreign JV as the risks described in points 3 and 4 above pertain more to a foreign JV than a domestic JV.

2. What is meant by "the Letter of Intent"?

Ans. “Letter of Intent” for a Joint Venture is a letter proposing good faith intentions from one  party to another party/parties to have a joint venture. The good faith intentions of the parties is shown in the letter of intent but the same is not legally binding to either party. The Letter of Intent proposes the various advantages of the JV and the taxation and others terms of the JV.

3. Define "Controlled Foreign Corporations" in your own words.

Ans. A “ Controlled Foreign Corporation” (CFC)is a corporation which is an overseas joint venture in which 50% of the shareholders are US citizens/US green cards etc. However, there is a condition that the US citizen is considered a shareholder only if his shareholding is more than 10% of the stock of the corporation. Any corporation is a CFC only if the above two conditions are met.