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Xaviers Institute of Business Management Studies
MARKS:
100 .
SUB: International
Business.
Section A (8
Marks Each Question) ( Attempt any 5 )
Question. 1. What are basic differences between
domestic and international business?
Answer : 1. Domestic Business :
Domestic business refers to the business where economic transactions are
conducted within the geographical boundaries of the one country. The buyer and
seller in domestic business belong to same country. It is is limited to
territory. In domestic business it is very easy to conduct business research.
The nature of customers in domestic business is homogeneous. In this currency
of parent/home country is used for doing business.
2. International Business :
Question. 2. While some see globalization as the
avenue to the development of poor nations, others see it intensifying misery
and inequalities. Critically examine the above statement in today's context?
Question. 3. Explain - Localisation of global strategy
Answer :
Localization strategy is how a company adapts its message to a
particular language or culture. When entering a new market, you need locally
consumable websites, social media, marketing campaigns, and more. Localization
strategy is your plan to make any needed modifications in tone, imagery and
subject matter to successfully connect with the local customer.
Question. 4. Explain - Technology contracting
(licensing) as an alternative to FDI or ownership strategy.
Question. 5. Explain - Major factors contributing to
the success of international strategic alliances.
Answer : There are three main success factors that plays a role in
International Strategic Alliances.
They are Partner Choice, Alliance Composition and
Managing the alliance.
A.) PARTNER CHOICE : An effective partner helps the
firm achieve its strategic goals, which can
be market access, sharing of costs
Question. 6. Explain the role of “Power Distance"
in understanding Hofsted's work on cross-cultural prospective. How does this
help in managing international environment?
Answer
: As the business world becomes more global,
employees will likely face someone from another country at some point in their
careers, companies will negotiate with companies from other countries, and even
employees of domestic companies will likely encounter someone from another
country.
Furthermore,
trends suggest that immigration, the movement of people from their home
country to other countries, will continue to grow worldwide, a process that
will contribute to making companies’ workforces increasingly diverse.
Additionally, many multinational companies rely on expatriates to run their
local operations. An expatriate is foreign employee who moves to and
works in another country for an extended period of
Question. 7. Discuss the relationship between an MNE
and its subsidiaries in the context of the "make or buy" decision.
What are the implications so far as the organization structure/design is
concerned?
Question. 8. Explain the role of bargaining
power" in managing negotiations in international business.
Answer : The ability to
strategically negotiate with other companies drastically impacts the success of
your business, both in closing individual deals and sustaining long-term
business relationships. One of the most crucial elements of a successful
negotiation is bargaining power. Accurately recognizing your bargaining power
and the bargaining power of your negotiation partner and properly implementing
it ensures you
Question. 9. Briefly discuss the direct and indirect
impacts of FDI on LDCs
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SECTION B (20 Marks Each Case)
Question. 6.
Please read the following case study carefully and answer the questions given
at the end.
SEN-SCHWITZ
To the
Florid-faced German at Frankfurt Airport's immigration-counter, he appeared to
be just another business traveller. True, but a bit of an understatement. The
man under scrutiny was Binoy Sen, whom the Indian media referred to as the
Boom-Box king.
At 14, he had
assembled, from parts scavenged from the local dump, a spool-recorder that had
fitted nicely into a suitcase. By the time he time he was 37, in 1979, Sen
& Sen (S&S), a company he had promoted with his elder brother, Sanjoy
--- who made up for his lack of technical expertise with a razor sharp business
brain --- was Asia's largest manufacturer of radios and cassette-recorders.
Now, at 56, he presided over India's largest audio-Products Company.
Sen-Schwitz, a joint venture with the Frankfurt-based consumer electronics
giant, Schwitz GMBH.
S&S
association with Schwitz had actually begun in 1984. Music had become a
movement in Europe at that time, with immigrant labour of all colour and
teenagers of all sizes constituting market-segments that no company could
afford to ignore. But their means were slender, and intensity of output, rather
than nuances of pitch and tone, was what they were concerned about. Since
assembling was a labour and cost intensive process, at least in Europe, Schwitz
could not manufacture low-end boom-boxes cheaply.
So, the
company turned to Asia, where it was certain some Chinese or Taiwanese company
could meet its requirements. None could. However, on a reach of Taiwan, one of
the company's managers had spotted a couple of S&S products at a retail
outlet. While this Indo-German relationship had begun as a vendor-buyer one,
Helmut Schwitz, 51, the CEO of Schwitz --- no relation of Adolf Schwitz, who
had founded the company just after the end of World War II --- took an instant
liking to the Sen brothers. Two years after S&S started supplying it
products, in 1986, the German company acquired a 10 per cent stake in its
Indian supplier.
IN 1992, when
Schwitz released that he could no longer ignore the Indian market and the Sens
accepted the fact that they couldn't survive the threat from global competition
without technology and marketing support from their German Partner, they formed
a formal joint venture. The Sens and the German company both held 26 per cent
stakes in Sen-Schwitz, with the rest being divided between the financial
institutions and the investing.
The joint
venture did well right from its inception. The transnational's superior quality
standards and S&S strong distribution network worked wonders. Within 2
years, the company had managed to carve out a 45 per cent share of the Rs.
795-crore market. The Sens were happy and so was Schwitz. By 1998, Sen Schwitz's
share had increased to 65 per cent in a market that had grown to Rs. 1,150
crore, And when Sen reached Frankfurt for the annual review of the joint
venture that Schwitz GMBH insisted on --- the company had 7 joint ventures
across Asia and Latin America --- he could not but help feeling that all was
well with the world of music and money.
Sen's
feelings were only amplified during the review. After the preliminary
greetings, Helmut Schwiz took the oais. The room darkened, and a series of
PowerPoint images flashed on the screen behind Schwiz as he spoke. Sen caught
only fragments of the German's heavily accented voice, his attention was
focused on the images and the bullets of text they contained. Sen scrawled a
few of them on his notepad
* A turnover
of $ 100 billion by 2005
* AQ growth -
rate of 20 per cent a year.
* 35 per cent
of the growth coming from India and China Then. Schwiz started speaking about
India and Sen's attention moved from the screen to the man. What he heard
pleased him. "Sen-Schwiz has a marketshare of 65 per cent in a market that
is growing at the rate of 30 per cent a year. As far as our targets for 2005
go, we believe that it is our most promising joint venture."
The blow fell
later, during the break for lunch. Sen and Chris Liu who headed the company's
joint venture in Taiwan, were exchanging notes when Schwiz butted in and, in
his characteristic overbearing fashion, quickly monoeuvrec Sen to one corner of
the room.
"India
is, clearly, the market of the future, Binoy," he said, biting into a
roll. "You're doing a great job, and can expect support from me for all
your endeavours. But I'm worried about your margins." Here it comes,
thought Sen, the twist in the tall. "A post tax margin of 8 per cent
doesn't look too good," continued Schwiz, "especially when seen in
the light of rising volumes. We should take a fresh look at our Indian
operations, Why don't you meet with Andrew?"
Suddenly, Sen
was on guard. The 55 year old Andrew Fotheringay was Schwiz's President
(International Operations). Sen liked him; they had worked together when the
joint venture was being set up, and had been impressed by his eye for detail.
But he also knew that Fotheringay was Schwiz's hatchetman. "What's on your
mind, Helmut ?" he asked point-blank "oh, nothing yet," replied
Schwiz, "but we have to find a way to introduce more products into the
Indian market without stretching Sen-Schwitz, Talk to Andrew."
That wasn't
to be Fotheringay, whose wife was 9 months pregnant, had to suddenly leave for
London, but promised to fly down to Calcutta, where Sen-Schwitz was based as
soon as the baby was born. Now, Sen was sure that something was up :
Fotheringay wasn't the kind of manager to do something like that for nothing.
Sen voiced his fears at a meeting of the Sen-Schwitz board, which had been
scheduled on the day of his return. One of the board members, R. Raghavan, 53 a
professor of corporate strategy at the Indian Institute of Management, Gauhati,
felt that Sen was over reaching I don't think it is quite what you think,
Sanjoy he started although Sen hadn't put any specifics to his fears.
"Sen-Schwitz is, as BUSINESS TODAY keeps reminding us, evidence that there
is, indeed, scope for a win-win joint venture even in the Indian context."
He was wrong.
Sure, the joint venture has benefited from the German parent's technical
expertise. In turn Schwitz GMBH had profited substantially from Sen Schwitz's
dividend pay-outs : more than 25 per cent every year. Werner Kohl, 48 Sen
Schwitz's Technical Director, seemed to agree with the professor. Kohl was a
Schwitz nominee on the board, and had been a Vice-president (Operations) at the
transnational's Hamburg plant before being seconded to Sen-Schwitz for a 5 year
period. But Kohl Sen knew was not likely to know what was happening back home.
The one
person who agred with Sen was Rajesh Jain 44, the IDBI nominee on the board,
who expressed the opinion that Schwiz GMBH could possiibly, be planning another
joint venture with some other company. That sounded far-fetched even to Sen.
Sen-Schwitz's closest per cent. Besides, no company could match Sen-Schwitz;'s
distribution network. So, he decided to let his fears abate till Fotneringay
could either dispet them --- or make them come alive.
True to his
word, Fotheringay, now the proud father of his first daughter landed up in
Calcutta a week later. He first met the company's functional heads, and gave
them a pep talk: " Sen-Schwitz's volumes-thrust should be backed by a
profitability focus. Once we ensure margins of 13 to 15 per cent, we will be on
our way."
Alone with
Sen, though, Fotheringay quickly laid his cards on the table. Schwitz, he
informed Sen, wished to set up a 100 per cent subsidiary in the country. Sen's
mind was, suddenly, clear. He had been a fool not to see it coming. All that
talk about restructuring the joint venture, introducing newer models, and the
need for higher margins led up to just one thing: a fully-owned Schwiz
subsidiary." So what does this mean for us, Andrew," he asked,
"Is this advance warning about a parting of ways?"
Fotheringay
was quick to dispel this notion. "The subsidiary will not compromise the
interests of the joint venture. Schwitz has a long-term commitment to the India
market, and this subsidiary is just a step in that director."
All this
talk-about commitment, realized Sen, was taking them nowhere. He sounded just a
little imitated when he spoke: "I just can't understand why you people are
even considering a subsidiary when the joint venture has been so successful. We
have a great brand, good products, the finest distribution network in the
business, and an excellent supply chain Together, we have created a matrix that
has delivered. Why does Schwitz want to reinvent the wheel?"
Fotheringay's
answers didn't satisfy him. He made some noises about the subsidiary taking
upon itself a large portion of the expenses involved in building the
Sen-Schwitz brand, thereby reducing its operational expenses, and improving its
margins. Sen was quick to point out that the Government of India did not view
proposals for fully-owned marketing subsidiaries favourably. "Besides,
does this mean that we transfer our marketing and distribution network to the
subsidiary?" he asked incredulously.
Fotheringay
side-stepped the issue: "No, no, the subsidiary will only manufacturer
products." Reading the look on Sen's face, he hastened to enumerate
Schwitz's gameplan: 'Of course, none of our offerings will complete directly
with Sen-Schwitz As you are aware,the audio systems market is fairly segmented,
so there is a great deal of potential for new offerings. We want to set up a
committee from Sen-Schwitz and Schwitz to decide on the respective roadmaps of
the joint venture and the subsidiary so as to avoid any conflict."
"That
apart," he smiled, here comes the carrot, thought Sen and he wasn't
wrong,"the Sens will have the option to buy upto 49 per cent of the
subsidiary's equity when it goes in for an
IPO."
The subsidiary is not even off the ground, thought Sen and Andrew is already speaking
in terms of US and THEM
Fotheringay
took Sen's silence to mean acceptance."The other reason," he
continued, "is that we cam use the subsidiary to introduce our premium
brands into the country. There is evidence that the market for premium audio-systems
is all set to boom. Think about it, Binoy. The subsidiary will only strengthen
the strategic relationship between the Sens and Schwitz GMBH."
The Sens
aren't involved, thought Sen; this is an issue that concern Sen-Schwiz
andSchqitz. But he didn't want to split hairs, and promised, instead, to think
about it.
Sen-Schwitz's
Executive Committee thought about it for 3 months. And it still didn't make
sense to them. Schwitz GMBH operated through joint ventures in every part of
the developing world. Only in the US, UK, and France did it have fully-owned
subsidiaries, using the subsidiary as a sink that would absorb the joint
venture's marketing expenses didn't make sense too.
"It
sounds altruistic," said V.K. Kapur, 44, the company's head of marketing. "If
launching more products is the only behind the subsidiary, there is no reason
why the joint venture cannot serve that purpose." Sen and the rest of the
Committee had to agree. "There's also no reason why we cannot improve our
margins by focusing on our operational efficiencies," argued Ajay Singh,
46, Sen Schwitz Director, operations, and Sen had to agree.
He decided to
discuss the matter with Sanjoy, who had retired from the business, and was
involved in managing a charity. But Sen didn't get a chance. News-agency had
picked up a report that had appeared in the Financial Times Schwitz's decision
to set up a 100 per cent subsidiary in India. The report created a major stir
in the Bombay stock Exchange, with the price of Sen-Schwitz's stock falling by 30
per cent a day.
It was
evident to Sen that no matter what Fotheringay and Schwitz thought, the
stock-market perceived the subsidiary as a threat to the joint venture. It was
also evident that the stock-market viewed Schwitz as the more valuable
brand."I understand,"Sanjoy told Binoy, when the situation had been
explained to him. The technology is Schwitz's. The brand, at least the more
powerful one, is theirs. And they have access to our distribution network. Face
it, we don't have a plank to fight on."
Questions:
Question. (a) Identify the sequence of events that has
led to the current problem.
Answer : Answer : Sen-Schwitz, a joint venture with the
Frankfurt-based consumer electronics giant, Schwitz GMBH. S&S association
with Schwitz had actually begun in 1984. Music had become a movement in Europe
at that time, with immigrant labour of all colour and teenagers of all sizes
constituting market-segments that no company could afford to ignore.
Schwitz could not manufacture low-end boom-boxes cheaply.
So, the company turned to Asia.
Question. (b)
Analyse the problem in the context of the process of globalization that has
been increasingly witnesses over the past decade or so.
Answer : The process of globalization that has been
increasing witnesses over the past decade and its effects on our modern day
world. The way I see it, globalization is simply the merging of societies be it
through their cultural, intellectual, moral, political or other foundational
aspects. I agree with what you said about the fact that globalization will
eventually lead to the elimination of cultural diversity in particular.
However, it has
Question. (c)
Examine the "fairness" of establishing a 100% subsidiary by Schwitz
GMBH when the alliance is on.
Answer : It is not fair to establishing a 100% subsidiary
by Schwitz GMBH when the alliance is on why because:
The parent company does not have complete access to the
cash flow of the subsidiary, unless the parent controls 100 percent of the
shares. To maintain its image and reputation, the parent company may have to
pay for the subsidiary's debts even if it has no legal obligation. Lending
institutions may require guarantees from the parent before lending to one of
its subsidiaries.
Question. (d)
What future course of action would you suggest to S&S? Give reasons for
your answer.
Answer : The future course of action I suggest to S&S
are:
Strengthen the execution infrastructure by investing in
‘safe bets’.
Regardless of which growth strategy is selected, a firm’s
infrastructure must be up to a standard that supports successful execution. An
on-going commitment to creating such an infrastructure is a ‘safe bet’.
Achieving this requires (1)
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Question. 7.
Please read the following case study carefully and answer the questions given
at the end.
Sunlight Chemicals
Starting at
the vast expanse of the Arabian Sea from his comer office at Bombay's Nariman
Point, Ramcharan Shukla the 53-year old executive vice-chairman and managing
Director of the 500-crore Sunlight Chemicals. (Sunlight felt both adventurous
and apprehensive. He knew he had to quicken the global strides Sunlight had
made in the last four years if the company was to benefit from its early gains
in the world markets. However, he was also shaken by a doubt: would his
strategy of prising open international markets by leveraging the talents of a
breed of managers with transnational competencies succeed? Globalisation had
been an integral part of Sunlight's business plans ever since Shukla took over
as managing director in 1990 with the aim of making it the country's first
international chemicals major Since then Sunlight --- the country's
third-largest chemicals maker --- had developed export markets in as many as 40
markets, with international revenues contributing 40 per cent of its Rs. 500
crore turnover in 1994-95. The company also set up manufacturing bases in eight
countries --- most recently in China's Shenzhen free trade zone --- manned by a
mix of local and Indian employees.
These efforts
at going global first took shape in December 1991 when Shukla, after months of
deliberations with his senior management team, outlined Sunlight's Vision 2001
statement. It read " "We will achieve a turnover of $ 1 billion by
2001 by tapping global markets and developing new products." The statement
was well-received both within and outside the company. The former CEO of a
competitor had said in a newspaper report: "Shukla has nearly sensed the pressures
of operating in a new trade with a tough patents regime."
But Shukla
also realised that global expertise could not be developed overnight.
Accordingly, to force the company out of an India-centric mindset, he started a
process of business restructuring. So, the company's business earlier divided
into domestic and export divisions, was now split into five areas: Are I (India
and China), Area 2 (Europe and Russia), Area 3 (Asia Pacific), Area 4 (US) and
Area 5 (Africa and South America). Initially managers were incredulous, with
one senior manager saying: "This is crazy. It lacks a sense of
proportion."
The Cynicism
was not misplaced. After all, the domestic market --- which then contributed
over 90 per cent of the company's turnover --- had not only been dubbed with
the Chinese market, but had also been brought at par with the areas whose
collective contributions to the turnover was below 10 per cent Shukla's
explanation, presented in an interview to a business magazine: "Actually,
the rationale is quite simple and logical. We took a look at how the market mix
would evolve a decade from now and then created a matrix to suit that mix. Of
course, we will also set up manufacturing facilities in each of these areas to
change the sales-mix altogether."
He wasn't wrong.
Two years later, even as the first manufacturing facility in Vietnam was about
to go on stream, the overseas areas' contribution to revenues rose to 20 per
cent. And the mood of the management changed with the growing conviction that
export income would spoon surpass domestic turnover. Almost simultaneously,
Shukla told his senior managers that the process of building global markets
could materialise only if the organisation became fat flexible, and
fleet-footed. Avinash Dwivedi, am management
consultant
brought in to oversee Sunlight's restructuring exercise, told the board of
directors: "Hierachies built up over the years have blunted the company's
reflexes, and this is a disadvantage while working in the competitive global
markets."
The selection
of vice-president for the newly-constituted regions posed no immediate problem.
For Sunlight had several general managers --- from both arms of marketing and
manufacturing -- whose thinking had been shaped by the company's long exposure
to the export markets. For obvicus reasons, the ability to build markets was
the primary criterion for selection. The second criterion was a broad business
perspective with a multi-functional, multi-market exposure. That was because
Shukla felt it did not make good business sense to send a battalion of
functional managers to foreign markets when two or three business managers
could suffice.
But Specific
markets also needed specific competencies. That was how Sunlight chose to
appoint a South African national to head Area 5. The logic" only a local
CEO could keep track of changes in regulations and gauge the potential of the
booming chemicals market in the US. However, the effort was always focused on
using in-house talent. Shukla put it to his management team: "We should
groom managerial talent --- whether local or expatriate --- for all our
overseas operations from within the company and should rotate this expertise
worldwide. In essence, we should develop global managers within the
company."
While doing
the personnel planning for each area and fixing the compensation packages for
overseas Assignment. Sunlight realised the importance of human resource (HR)
initiatives. The HR division headed by vice president Hoseph Negi, had been
hobbled for years with industrial relations problems caused by the unionisation
of the salesforce, " You have to move in step with the company's global
strategy." Shukla had told his HR managers at a training session organised
by Dwivedi who was spearheading the task of grooming global managers.
Four years
down the line, Shukla felt that Sunlight was still finding its way around the
task Sure, a system was in place. Depending on the requirements of each of the
four areas, Sunlight had started recruiting between 25 and 30 MBAs every year
from the country's leading management institutes. During the first six months,
these young managers were given cross-functional training, including classroom
and on-the-job inputs. The training was then followed by a placement dialogue
to determine the manager -area fit. If a candidate were to land, for instance,
on the Asia-Pacific desk at the head office, he would be assigned a small
region, say, Singapore, and would be responsible for the entire gamut of
brand-building for a period of one year in coordination with the regional
vice-president. The success with which he would complete his task would decide
his next job: the first full-time overseas posting. He could be appointed as
the area head of, say, Vietnam, which was equivalent to an area sales manager
in the home market. After a couple of years, he would return to base for a
placement in brand management or finance. A couple of years later, the same
manager could well be in charge of a region in a particular area. Over the past
four years. Sunlight had developed 30 odd potential global managers in the
company spanning various regions using this system.
But,
considering that the grooming programme was only three years old, Shukla felt
that it would take some time for the company's homespun managers to handle
larger markets like China on their own. The real problem in this programme was
in matching the manager to the market. Dwivedi suggested a triangular approach
to get the right fit: define the business target for a market in an area. Look
at the candidiate's past Performance in the market, And identify the key
individual characteristics for that market. Dwivedi also identified another
criterion: a good performance rating at home during the previous two years.
Once selected for an overseas posting, the candidate would be given
cross-cultural training: a course in foreign languages, interactive programmes
with repatriated managers on the nature of the assignment and, often,
personality development programmes on the nuances of country business etiquette.
Further, an
overseas manager would be appraised on two factors: the degree to which he had
met his business plan targets for the market, and the extent to which he had
developed his team. After all, he had to cachet the posting within three years
to make place for his replacement. Achievements were weighed quarterly and
annually against sales targets set at the beginning of the year by the
vice-president of the region. The appraisal would then be sent to the corporate
headquarters in Bombay for review by the senior management committee. Shukla
had often heard his senior managers talk appreciatively of the benefits of
transrepatriation. "The first batch of returnees are more patient tolerant
and manure than when they left home," said Manohar Vishwas, vice-president
(finance),"and they handle people better."
But the
litmus test for the company, Shukla felt would be in managing a foreign
workforce --- across diverse cultures --- at the manufacturing facilities in
six countries outside India. The Shenzhen unit, for instance had 220 employees,
out of which only 10 were expatriate Indians. Further, the six-member top
management team had only two Indians. Of course, the mix had been dictated by
the country's laws and language considerations.
Some of the
African markets had their own peculiarities. The entire team of medical
representatives, for example, comprised fully-quilifies, professional doctors.
Sharad Saxena, vice-president, Area 5, told Shukla: "As there is heavy
unemployment in Africa doctors are attracted to field sales work for higher
earnings." There were other problems too: as both Chinese and Russian had
been brought up on a diet of socialism, they were not used to displaying
initiative at the workplace. Dwivedi had suggested that regular training was one
of the ways of transforming the workforce. So, Shukla hired a training group
from Delhi's Institute of Human Resource Management
training to
spend a month at Shenzhen. This was later incorporated as an annual exercise.
Observing
that interpersonal conflicts were common in situation where with single-country
background were working together, a new organisational structure was
introduced. Here, Sunlight positioned local managers was introduced. Here,
Sunlight positioned local managers between an Indian boss and subordinate.
Similarly, some Indian managers were positioned between a local boss and
subordinate. Says Avishek Acharya vice-president, Area 3: "There were some
uncomfortable moments, but it led to a better integration or management principles,
work practices, and ethics."
Obviously,
reflected Shukla, Dwivedi was doing a great job. As he watched the setting sun,
however, he found his thoughts turning to a more fundamental question. However
immaculate his HR planning had been, had he made a mistake by not developing
his strategies first? Was he mixing up his priorities by putting people
management" ahead of issues like marketing, technology, and global trade?
Even the HR strategy he had chosen worried Shukla. Should he have opted for
more locals in each country? If expatriate managers failed more often than they
succeeded in India wasn't the same true for other countries?
Questions:
Question. 1.
Is Sunlight on the right track in going global without trying to consolidate
its position further in the home market?
Answer : Ram Charan Shukla has taken sunlight industries
to a place where the early management would not have really envisioned to see
it. It is because of the continuous effort of Mr. Shukla, to have the right
people at the right place, that the company has grown to what it is today a
global MNC. It is the fruits of his labour which has become ripe with a Rs. 500
crore turnover company with 40% of the revenue coming from International
operations.
Question. 2.
Can Sunlight realise its global vision with its current mix of strategies?
However fine the company's HR planning had been, had Shukla made a mistake by
not developing his strategies first?
Answer : Global Diversity and Inclusion are integral to
the vision, strategy, and business success of Sunlight. Sunlight officially
formed the Office of Diversity & Inclusion in recognition of the fact that
leadership in the global marketplace requires a corporate culture and an
inclusive business environment where the best and brightest
Question. 3.
Are there any gaps in Shukla's game plan to conquer the globe?
Answer : Yes there
is a gap in Shula’s game plan.
The litmus test for the company, Shukla felt would be in
managing a foreign workforce --- across diverse cultures --- at the
manufacturing facilities in six countries outside India. The Shenzhen unit, for
instance had 220 employees, out of which only 10 were expatriate Indians.
Further, the six-member top management team had only two Indians. Of course,
the mix had been dictated by the country's laws and language considerations.
Some of the African markets had their own peculiarities.
The entire team of medical representatives, for example, comprised
fully-quilifies,
Question. 4.
What are the learnings that you can derive from the "Sunlight" case
so far as the internationalization of business is concerned?
Answer : The things learnt from Sunlight case are:
Spend some time determining just how
"different" things will really be.
Question. 8)
Please read the following case study carefully and answer the questions given
at the end:
Electrolux
Electrolux is
Sweden's largest manufacturer of electrical household appliances and was one of
the world's pioneers in the marketing of vacuum cleaners. However, not all the
products the Electrolux name are controlled by the Swedish firm. Electrolux
vacuum cleaner sold and manufacturer in the United States, for example, have
not been connected with the Swedish Firm since the U.S subsidiaries were sold
in the 1960s. The Swedish Firm reentered the U.S. market in 1974 by purchasing
National Union Electric, which manufacturers Eureka vacuum cleaners.
Electrolux
pursued its early international expansion largely to gain economies of scale
through additional sales. The Swedish market was simply too small to absorb
fixed costs as much as the home markets for competitive firms from larger
countries. When additional sales were not possible by exporting, Electrolux was
still able to gain certain scale economies through the establishment of foreign
production. Research and development expenditures and certain administrative
costs could thus be spread out over the additional sales made possible by
foreign operations. Additionally, Electrolux concentrated on standardized
production to achieve further scale economies and rationalization of parts.
Until the
late 1960s, Electrolux concentrated primarily on vacuum cleaners and the
building of its own facilities in order to effect expansion. Throughout the
1970s, though, the firm expanded largely by acquiring existing firms whose
product lines differed from those of Electrolux. The compelling force was to
add appliances lines to complement those developed internally. Its recent
profits ($220 million in 1983) have enabled Electrolux to go an acquisitions
binge. Electrolux acquired two Swedish firms that made home appliances and
washing machines. Electrolux management felt that it could use its existing
foreign sales networks to increase the sales of those firms in 1973, Electrolux
acquired another Swedish firm, Facit, which already had extensive foreign sales
and facilities. Vacuum cleaner producers were acquired in the United States and
in France; and to gain captive sales for vacuum cleaner. Electrolux acquired
commercial cleaning service firms in Sweden and in the United States. A French
Kitchen equipment producer, Arthur Martin, was bought, as was a Swiss home
appliance firm. Therma, and a U.S. cooking equipment manufacturer, Tappan.
Except the
Facit purchase, the above acquisitions all involved firms that produced
complementary lines that would enable the new parent to gain certain scale
economies, However, not all the products of acquired firms were related, and
Electrolux sought to sell off unrelated businesses. In 1978 for example, a
Swedish firm, Husgvarna, was bought because of its kitchen equipment lines.
Electrolux was able to sell Husqvarna's motorcycle line but could not get a
good price for the chain saw facility. Reconciled to being in the chain saw
business. Electrolux then acquired chain saw manufacturers in Canada and
Norway, thus becoming one of the world's largest chain saw producers. The above
are merely the most significant. Electrolux acquisitions: the firm made
approximately fifty acquisitions in the 1970s.
In 1980,
Electrolux announced a takeover that was very different from those of the
1970s. It offered $175 million, the biggest Electrolux acquisition, for Granges
Sweden's leading metal producer and fabrication Granges was itself a
multinational firm (1979 sales of $ 1.2 billion) and made about 50 percent of
its sales outside of Sweden. The managing Directors of the two firms indicated
that the major advantage of the takeover would be the integration of Granges
aluminum, copper plastic, and other materials into Electrolux production of
appliances. Many analysts felt that the timing of Electrolux's bid was based on
indications that Baijerinvest, a large Swedish conglomerate, wished to acquire
a non--ferrous matels mining company. Other analysis felt that Elctrolux would
be better off to continue international horizontal expansion as it had in the
1970s. The analysts pointed to large appliance makers such as AEG Telefunken of
West Germany that were likely candidates for takeover because of recent poor
performance.
Questions:
Question. 1. What are Electrlox's reasons for direct
investment?
Answer : These factors are not immutably fixed. The
importance of one or more over others can vary depending on economic,
financial, and political conditions. Economic conditions in a nation may change
drastically, which can have a direct impact on the cost of doing business
there. In a downturn, labor may become cheaper and therefore it may be better
to produce in an economy suffering slow, stagnant or declining growth. If,
however, sales occur in the nation where the product is produced, a slow
economy may not be the place to produce. Financial conditions can also have a
major impact. If money is
Question. 2.
How has Electrolux's strategy changed over time? How has this affected its
direct investment activities?
Answer : Corporate level strategy is concerned with the
issues that are corporate responsibilities, these might include identifying the
overall goals of the corporation, the types of businesses in which the
corporation should be involved, and the way in which businesses will be
integrated and managed. And defining where in the corporation competition is to
be localized. Take the case of insurance; corporations decide how
Question. 3.
Which of Electrolux's foreign investments would be horizontal and which would
be vertical? What are the advantages of each?
Answer : There are two type of Electrolux’s vertical
direct investments. The first type of foreign investment is called foreign vertical
direct investment which is invest in the industry of foreign country.
The second type of the foreign direct investment included
forward vertical foreign direct investment in which an industry abroad sells
the outputs of a firm's domestic production process.
Forward vertical foreign direct investment is less common
than backward vertical foreign direct investment.
Horizontal FDI occurs
Question. 4.
What do you see as the main advantages and possible problems of expanding
internationally primarily through acquisitions as opposed to building one's own
facilities?
Answer : The main advantages and possible problems of
expanding internationally primarily through acquisitions as opposed to building
one’s own facilities are merger occurs when one firm assumes all the assets and
all the liabilities of another. The acquiring firm retains its identity, while
the acquired firm ceases to exist. A majority vote of shareholders is generally
required to approve a merger. A merger is just one type of acquisition. One
company can acquire another in several other ways, including purchasing some or
all of
Question. 5.
Should Electrolux take over Granges?
Answer : Electrolux take over Granges why because it
offered $175 million, the biggest Electrolux acquisition, for Granges Sweden's
leading metal producer and fabrication Granges was itself a multinational firm
(1979 sales of $ 1.2 billion) and made about 50 percent of its sales outside of
Sweden. The managing
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