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International Business

 

·       Section 1: Caselets (30 Marks)

·       Read the Caselets and Answer All the Questions

 

Caselet 1 (15 Marks)

 

When Ray Kroc established McDonald’s in 1955 he founded the restaurant on the basis of providing customers quality, service, cleanliness, and value. The McDonald’s website still boasts these values as part of its core as well as giving back to the communities in which they do business, celebrating achievements while striving to achieve new heights, approaching all aspects of the business with honesty and integrity, and giving back to the system that provides them their success. Along with the core values, McDonald’s includes its guiding principles on the website– a commitment to exceeding customer’s expectations, belief in success from the ‘three-legged stool’ (corporate, franchisee partners, and supplier partners), a passion and responsibility for enhancing and protecting the McDonald’s brand, a belief in collaborative management approach, and a commitment to franchising and seizing every opportunity to innovate and lead the industry. These values and principles make up the organizational culture of McDonald’s. McDonald’s is a prime example of Davis and Scott’s corporate culture. Such organizations “rely less on formalized control systems than on the development of a set of common beliefs and norms that participants employ to orient and govern their contributions.” (Scott, 2007: 213) The culture of McDonald’s is stable and well established. Hamburger University, located in Oak Brook, Illinois, is a training center that is used in order to instill the principles of the business to more than 5,000 employees each year. The university is used to develop the most committed individuals in the industry. Service with a smile, bright lights, fast food, predictability and cleanliness are all things that are associated with McDonald’s, not only by employees but with customers as well. It can be anticipated, no matter the location around the globe, when a hamburger is ordered it will be delivered by a friendly associate and it will have the typical McDonald’s taste. Having such a strong organizational culture creates an environment in which employees know what is expected of them and are eager to perform in such a way as to uphold the values of the company. If any American were asked to sum up the organizational culture of McDonald’s, they would respond with efficiency and standardization. Americans eat at McDonald’s because the food comes fast and there is no skepticism over taste. McDonald’s restaurants are a sense of comfort when people travel abroad; there is no need to worry whether or not the local cuisine will be suitable when there are McDonald’s on every street corner. Surprisingly, these corporate values were not the ones that created the most buzz in Asia. Easterners were not looking for a restaurant meal they could eat in eleven minutes, the average time an American spends eating at McDonald’s, nor were they looking for an ordinary hamburger that tastes the same in Hong Kong and Beijing. Then, what was it that made the organizational culture of McDonald’s so adaptable to Asian culture or so powerful it was able to alter Asian culture to agree with the organization’s principles? In 1971, Den Fujita opened the first McDonald’s establishment in Japan. Following Japanese code for food preparation, the lunches are intricately arranged and have cultural order and meaning. The lunches are prepared daily by mothers and must be consumed quickly and entirely by the child in the company of classmates. The message surrounding the obentō is that the world is constructed very precisely and the role of any Japanese citizen is to be carried out with similar precision. The lunch represents many ideals of the Japanese state: women are responsible for sustaining a child through food and providing support for the ideas of culture the food embeds; a child’s duty is to education, which is made possible by mothers who make their lunches; and men, who have no presence in the lunches, are identified by their place of work and are accountable for supporting the family by monetary means. Food preferences, in the past, were considered culturally oriented. With the globalization and success of franchises abroad, McDonald’s has proven that tastes can change. The corporate culture of the organization affected how the organization coped with competition and changed. When the first franchise opened in Japan, the menu consisted mostly of items similar to those in the United States. In effort to increase sales, McDonald’s restaurants experimented with different food items such as Chinese fried rice, curried rice with chicken, and fried egg burgers. (Ohnuki-Tierney, 2007) The menu adjustments are examples of McDonald’s playing to one of its guiding principles: a commitment to exceeding customer expectations. Consumer taste was not the only challenge McDonald’s had to deal with in Japan. Commensality, eating together at one table, is central to the Japanese. One of the most important roles of food is bringing people together and creating a sense of community. Rice, which is delivered to the table in a common container and served to everyone at the table, is the essence of a food that bonds families and creates social relationships. McDonald’s hamburgers, conversely, are meant to be eaten individually and cannot be shared. Not only does the food in McDonald’s restaurants fail to encompass the characteristic of commensality, but the physical arrangement of the restaurants in Japan further de-emphasize this feature. The original franchise in Ginza, Japan had neither tables nor seats; there were counters in which customers were expected to eat their meals on the go. As McDonald’s expanded in Japan, restaurants gradually included tables in the layout. Usually on the first floor of restaurants there is a small space for ordering food and seating areas are on the second and third floors. Still, restaurants have more counters with stools facing walls than they do tables with chairs. The final obstacle the Japanese posed for the expansion of McDonald’s was their perception of the food as snacks. Any food that consists of bread is not deemed “filling,” and hamburgers have become a snack that is consumed between meals. McDonald’s diversion from commensality and its supply of non-traditional Japanese food coupled with the consumer’s perception of the food as a snack has created an environment suitable for young people to come and hang out. In Japan, the national culture seems to have had a greater impact on the organizational culture than the reverse. They have not conceded to the traditional tastes of American hamburgers, but instead prefer rice burgers, a slice of meat between bun-shaped rice patties. Though it has become progressively more acceptable by the Japanese to eat at McDonald’s, it has not become a place where lunches or dinner by the masses is consumed. Den Fujita concedes: “McDonald’s has gained ample recognition among Japanese consumers. However, our image is that of a light-meal restaurant for young people. We are not regarded as a place for adults to have dinner.”

Answer the following Questions:

A. McDonald’s is a prime example of Davis and Scott’s corporate culture. Such organizations “rely less on formalized control systems than on the development of a set of common beliefs and norms that participants employ to orient and govern their contributions.” Do you agree with this statement? Distinguish between formalized and cultural control systems. (8 Marks)

Answer: Yes, we agree with the statement.

McDonald’s organizational culture emphasizes human resource development and efficiency. It supports business growth and success in the international fast food restaurant market.

The culture of McDonald’s is stable and well established. Hamburger University, located in Oak Brook, Illinois, is a training center that is used in order to instill the principles of the business to more than 5,000 employees each year.  The university is used to develop the most committed individuals in the industry.

Service with a smile, bright lights, fast food, predictability and cleanliness are all things that are associated with McDonald’s,

 

B. Comment on the organizational culture of McDonald’s. Explain the process of creating and maintaining an organization culture. (7 Marks)

Answer: McDonald’s Corporation has a divisional organizational structure. Conceptually, in this structure type, the business organization is divided into components that are given responsibilities based on operational requirements. Each division handles a specific operational area or set of strategic objectives. One of the aims of this corporate structure is to support autonomy and organizational flexibility in satisfying business needs in different organizational aspects and markets. McDonald’s organizational structure has the following characteristics, arranged according to significance in affecting food service

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Caselet 2 (15 Marks):

 

GlaxoSmithKline (GSK) ranked as one of the largest research-based Pharmaceuticals and Healthcare and held third position in terms of revenue in the global pharmaceutical market in 2008. Although, GSK was on par with its competitors as regards to generics, but relatively faster growth of emerging markets and a slowdown in the major markets in 2008 due to global economic recession posed a greater threat for GSK and other innovator companies. During 2008, GSK struggled to improve its revenue in US and European markets and reported a 14% drop in profit for the first-quarter mainly due to the generic competition in the category of its anti-depressant and heart medications. Sales of diabetes drug Avandia also fell due to stricter safety warnings. According to Andrew Witty, Chief Executive of GSK, regulatory pressures were a key challenge for the industry. GSK lost $18 billion of its market value, when one of the 10 medicines which accounted for 65% of GSK's business - Avandia, used for the diabetes treatment - was linked with an increased risk of heart attacks. To tackle the growing threat of generics, GSK took a bold step on 23 July, 2008 to enter the emerging market by teaming up with South Africa's Aspen, a major supplier of branded and generic pharmaceutical drugs. The alliance was considered as complete departure from the company's existing business strategy of focusing on only high-cost patented drugs – which had higher profit margins than generics drugs. But they had to suffer when these patents get expired and face a threat from generics. It marked as a latest sign of GSK’s diversification strategy. GSK considered this deal as a major driver for its growth in emerging markets as it would get access to a broad range of lowcost branded but unpatented drugs. It was the company’s first move into the branded generics market through an alliance which is an attempt to target the emerging markets. The company hoped that its new strategy would enable to produce more drugs that could earn modest profits and reduce the risk of relying on a few big sellers unlike its traditional model of chasing blockbuster drugs. GSK deal with Aspen to diversify in the off-patent generics sector was regarded as a new turn in the Pharma industry. It was termed as a ‘transformational agreement’ that would significantly extend its portfolio in these markets. According to the alliance, GSK would be able to source the drugs from low-cost manufacturing facilities of Aspen and its partners which also included the Indian company, Strides Acrolabs. Aspen, along with its joint venture with Strides Arcolab Ltd., had a combined product portfolio of over 450 molecules. The joint venture had struck a global licensing and supply agreement with GSK. The deal would take 1,200 branded products of Strides, Aspen and their 50:50 ventures, Onco Therapeutics Ltd, to 95 emerging markets which would essentially allow GSK to access new, low-cost products and a push into these markets. GSK planned to register these drugs in the markets where they were approved and expected its first commercialized product to be launched by 2010. Through this deal, GSK expected to achieve an effective distribution for the products in many countries which were inaccessible to Aspen. GSK also expected that its new strategic priorities would help them in evolving itself into a company that had a balanced group of healthcare businesses and a lower overall risk profile. According to Witty, though the company had made an entry into the generics market, its core emphasis would remain to be pharmaceutical R&D. As for the funding of startups, he had outlined plans to have R&D broken down into smaller teams. GSK also revealed that it intended to outsource 50% of its R&D in future. This would help revamp the company’s R&D structure that would work in conjunction with recently revealed policy of allowing regulators and healthcare officials to comment on what products can advance through development. These widespread changes in policy were viewed as an attempt to create a company which was not just reliant upon blockbusters but also had a steady supply of profitable drugs in its pipeline. Western countries remained the lead manufacturers of medicines in the Pharma industry with a share of 77% of the global Pharma market. But it was evident that, emerging markets presented new opportunities for mature drugs whose sales declined in the major western markets especially which were on the verge of patent expiry. According to analysts, GSK took a breakthrough entry into emerging market for branded generics but it was still flaunted by lots of challenges. Yeoh Ben, Analyst, Dresdner Kleinwort said, “Though Witty had set out three new strategic priorities that aimed to increase growth, reduce risk and improve GSK’s longterm financial performance.” Analysts further add that GSK could face a tough competition in emerging market for its branded generics. The major challenges flaunted by emerging markets were intellectual property Rights (IPR) exposure and drug pricing controls. For instance, Turkey introduced a reference pricing system that resulted in having lower drug prices compared to any other European country. This would have a negative impact on the growth of pharma market. Other countries, such as Brazil and India, followed suit with different mechanisms for price controls that would affect the expansion in the future. The major obstacle for the higher uptake for GSK in these markets would be poor access to drugs through public health provision of healthcare. Finally there existed a first mover advantage due to witching costs and the reference price system. Amongst the largest emerging markets in generics, GSK would face a tough competition in India especially with Ranbaxy as it had a firm foothold. It is a leading player in the worldwide generics market which was lucrative and growing and had recently tied up with Daiichi Sankyo. China was another largest emerging market and forecasted to be the fifth largest market by 2010 and largest by 2050 in pharma market. China has got two key attractions –its population like India and strong biopharmaceutical sectors. China was slow to enforce the international rules as regards to IPR. Though, China had greater market access following its entry into the World Trade Organization; yet, multinational investors were facing continuous obstacles mostly pertaining to legacy of central planning of the industry in China. Even so, those companies that treat China as an integral part of their global business strategies could gain the potential rewards.

 

Answer the following Questions:

A. A firm has to contemplate three basic decisions for foreign expansion. Explain these three basic decisions and comment whether GlaxoSmithKline has considered this aspect or not. (9 Marks)

Answer:  Which Foreign Markets?

 

The choice between different foreign markets must be made on an assessment of their long run profit potential. This is a function of a large number of factors, many of which we have already considered in depth in earlier chapters.

 

Other things being equal, the benefit-cost- risk tradeoff is likely to be most favorable in the case of politically stable developed and developing nations that have free market systems, and where there is not a dramatic upsurge in either inflation rates, or private sector debt. It is likely to be least favorable in the case of politically

 

 

 

B. Explain the four strategies, a firm could select when competing internationally. Which strategy according to you GlaxoSmithKline has adopted as per the given case? Substantiate. (6 Marks)

Answer:  GlaxoSmithKline (GSK is among the largest research based pharmaceutical corporations which discovers, develops as well as manufactures a wide range of branded human health products. The company is headquartered in United Kingdom and has another operational headquarters in United States of America. Presently it markets its products to over 160 different countries whereby USA, France< UK, Germany, and Japan are its primary markets. The employee strength of the company is over 1,03,000 and they operate two main business divisions. The divisions are pharmaceuticals and consumer healthcare

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Section 2: Applied Theory (20 Marks)

Answer any One Question:

1. Discuss the ethical issues of international business.

Answer: Even the ethical issues differ from one country to another. A specific practice that is considered ethical in one country may be unethical in another country. The managers who are with multinational companies should be very careful and have the knowledge about the ethical and unethical values and should select only the ethical actions.

Some of the most common ethical issues that arise in multinational companies are with respect to human rights, corruption, environmental norms, practices of employment, moral aspects etc.

Employment Practices and Ethics

 

(Or)

2. Discuss the HR problems in Foreign Affiliates.

 

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