Chap - 13.docx - Internation Business [PDF]

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Chap 13 1. IKEA is very Sweden-centric; that is, they like doing it the Swedish way, from the names of the furniture to the management of the company. Sweden is a neutral country so maybe this is the way to go for a global company, but, really, is it smart to be too centric to a specific country when you are a global corporation? No, it is now wise to be too centric to a specific country when you are a global corporation. I don’t agree if we say IKEA is very Sweden-centric. It is true that IKEA keeps the general idea and most of the products the same, with small adjustment to ease people come into the IKEA view. But we cannot forget that the company also sends its representatives to all over the world, asking people what they need, and how they like to shop. Even, IKEA has showed the cultural needs in different countries, for example: Indian furniture can beat the heat and humidity;

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Chinese IKEA showrooms get their very own balconies;

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Korean IKEA beds are built for tiny spaces;

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Swedish meatballs get local flavors;

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American drinking glasses are as big as vases.

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It is important to understand that people from various countries have certain preferences. As such, if a company presents a product in a certain manner and is successful in that country, it should not assume that replicating the same will guarantee success in other countries. Companies must tailor their products to meet the needs and wants of the consumers in a specific country. Moreover, there are existing factors in countries that make certain management strategies either successful or not. this may include the legal policies in place, the strategies the competitors are using, and the economic system of the country. Given that these vary from country to country, it would be unwise to use the same approach to management in all countries. If a company is to succeed globally, it must learn how to twist its approach to management, sales, marketing, promotions and other activities with respect to the country that it is operating in. 2. IKEA is also very “IKEA-centric.” For example, the IKEA store itself will be laid out as a maze that requires customers to walk through every department before they reach the checkout stations. This forced path can seem constraining to their customers who naturally are more free spirited than the IKEA management model. Can this spell trouble in the near future, or is the IKEA way a sustainable business model? I think the layout is good. It requires customers to walk through every department before they reach the checkout stations. The stores are often structured as a one-way layout, leading customers counterclockwise along what IKEA calls “the long natural way.” This “way” is designed to encourage customers to see the store in its entirety. Cut-off points and shortcuts exist but are not easy to figure out. So, IKEA still provide cut-off points and shortcuts and only can be found by more free spirited people. And I think the IKEA “way” is a sustainable business model, because it gives much experiences for customers.

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3. Strategically, having more than 1,000 suppliers result in a complex task of managing those suppliers, ensuring the quality of the products, and maintaining the IKEA brand. While we will address global supply chains later on, from a global strategy standpoint how would you manage IKEA’s global suppliers?

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A global network of more than 1,000 suppliers based in more than 50 countries manufactures most of the 12,000 or so products that IKEA sells. IKEA itself must focus on the design of products and works closely with suppliers to bring down manufacturing costs. Developing a new product line can be a painstaking process that takes years. IKEA’s designers will develop a prototype design (e.g., a small couch), look at the price that rivals charge for a similar piece, and then work with suppliers to figure out a way to cut prices by 40 percent without compromising on quality. IKEA also manufactures about 10 percent of what it sells in-house and uses the knowledge gained to help its suppliers improve their productivity, thereby lowering costs across the entire supply chain. Critical thinking and discussion question QUESTION 1: In a world of zero transportation costs, no trade barriers, and nontrivial differences between nations with regard to factor conditions, firms must expand internationally if they are to survive. Discuss.

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ANSWER 1: The theory of comparative advantage suggests that activities should take place in the countries that can perform them most efficiently, given that different countries are endowed with different factors of production. If there are no barriers or costs to trade, then it is likely that many industries will be based out of the countries that provide the best set of factor endowments. Given location economies, a company can develop a global web of value-creation activities to take advantage of differing factor endowments in differing locations. For firms already located in the countries with the most favorable factor endowments for their industry, however, there may not be a need to expand internationally at a certain point in time. As factor endowments evolve, the firm may want to disperse its value creating activities to those markets that offer comparative advantages. If the firm is in a competitive market (think of the example of Clear Vision), it will benefit from international expansion that includes its value-creating activities because of the cost position and product differentiation opportunities such expansion can confer. A firm may be able to survive in a local market without international expansion, as long as the local market is not targeted by competitors that have taken advantage of the economies offered by dispersing their value-creation activities internationally. An example is an inefficient, high-priced locally-owned supermarket that has not yet faced the entry of Wal-Mart in its market. QUESTION 2: Plot the position of the following firms on Figure 13.6: Procter & Gamble, IBM, Nokia, Coca Cola, Dow Chemicals, US Steel, and McDonald‟s. In each case justify your answer.

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ANSWER 2: Most students will probably agree that Proctor & Gamble, Nokia, Coca Cola, and McDonalds are facing pressures for localization as well as cost pressures. This will push the firms towards the upper right-hand quadrant of Figure 13.6. However, it is important to keep in mind as illustrated in both the Opening Case and the Closing Case, that strategy is not static, but rather evolves, and so then will the position of these firms in the diagram. US Steel and Dow Chemical both produce commodity type products. Consequently, price (and pressure for cost reductions) is likely to be a key factor in the firms‟ strategy, and accordingly these firms could be placed in the upper left hand quadrant of the diagram. Most students will probably place IBM in the upper right hand quadrant of the diagram. More details on IBM‟s strategy can be found in the Opening Case. QUESTION 3: In what kind of industries does a localization strategy make sense? When does a global standardization strategy make most sense?

ANSWER 3: A localization strategy makes sense when pressures for local responsiveness are high. This situation is common when there are significant differences in consumer tastes and preferences between markets, when differences in infrastructure and traditional practices require customization, and when host government demands require local adaptation. Many students will probably suggest that the auto industry often faces pressure for local responsiveness as does the fast food industry. In contrast, when pressures for cost reductions are strong and there is little pressure for local responsiveness, a global standardization strategy makes sense. Some examples of industries where the global standardization strategy is common are the semiconductor industry and the bulk chemical industry. QUESTION 4: Reread the Management Focus on Procter & Gamble, then answer the following questions:

a) What strategy was Procter & Gamble pursuing when it first entered foreign markets in the period up until the early 1980s? b) Why do you think this strategy became less viable in the 1990s?

c) What strategy does Proctor & Gamble appear to be moving toward? What are the benefits of this strategy? What are the potential risks associated with it? ANSWER 4:

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a) Many students will probably suggest that Procter & Gamble took a reactive approach to its strategy in the early 1990s, but was more proactive in the late 1990s and early 2000s. The company’s initial reorganization was a reaction to a changing marketplace and sluggish profits, however, when it became apparent that the reorganization attempt was not really fixing the problems that existed, the company embarked on a new strategy. This time, rather than simply trying to adjust its existing strategy as the company had done in 1993, Procter & Gamble completely dismantled the structure that had been in place for a quarter of a century and reorganized as a company ready to operate in a global marketplace. b) Numerous factors prompted Procter & Gamble to change its strategy. Because of its country-by-country approach to the market, the company had extensive duplication of manufacturing, marketing, and administrative facilities that was driving up costs. In addition, the retailers that the company relied on were operating globally and demanding deeper discounts from Procter & Gamble. With its new strategy, the company has eliminated these problems. Now, Procter & Gamble‟s competitors are facing many of the same challenges. Some students will probably suggest that a key element that competitors can learn from Procter & Gamble‟s experiences is that operating in a global market is significantly different from selling internationally to individual markets.

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c) Today, Procter & Gamble is trying to take a transnational approach to markets. The company has reorganized into business units, each responsible for its own profits. Each unit has been directed to develop global brands where possible and keep costs low. While this new approach eliminates many of the problems facing the company under its old structure, it does introduce a new challenge in that there is little communication between business units which effectively minimizes the possibility of cross-unit learning and information sharing. QUESTION 5: What do you see as the main organizational problems that are likely to beassociated with implementation of a transnational strategy?

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ANSWER 5: This is a student judgment question. Implementation difficulties includecommunication issues, trust issues, multiple roles, flexibility and culture issues, among many others. For example, with GM, some European operations may need to collaborate with operations in Latin America. Actions related to such a loss of autonomy might function as a hurdle to implementation.

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