Expanding Abroad

Multi-national Entreprise (MNE)

For this course,

• substantial direct investment
  • not just a trading relationship
• active coordinated management
  • active input into the company, not just shareholder
• strategic and organizational integration
  • operations in different countries

Traditional Motivations

1. Market seeking: fill capacity (grow sales revenue)
2. Resource seeking
   • secure key suppliers
   • exploit factor cost differences

Emerging Motivations

1. Industry internationalization forces: scale economies, ballooning R&D investments, shortening product life cycles
   • scale: volume
   • scope: multiple products
2. Global scanning and learning: access emerging trends, new technologies, and best skills worldwide
3. Competitive positioning: e.g. use global operations to pre-empty others, cross-subsidize markets

Barriers to Internationalization

• different cultures have different beliefs

CAGE framework

Culture distance, Administrative / Political distance, Geographic distance, Economic distance.

Packaging regulation may seem small, but still comes up.

Taking Home Depot as an example, Chinese have a Do it For me, bargaining, city centre has richer people not the suburbs, homes were smaller and required immense effort not some DIY shelf.

Means of Internationalization

1. Export
2. Licensing
   • giving a company the right to use a trademark
3. Franchising
   • mcdonald’s
4. Joint Ventures
5. Subsidiaries
6. Acquisition

Internationalization Process Theory

Foreign direct investment (FDI):

• incremental process of learning and increasing commitment to foreign market
• perceived uncertainty and knowledge
• gradually increasing internationalization after a long period of doing business exclusively in the home market
• vs. born global approach (Facebook) vs. acquisition (Walmart ASDA UK)

Global Integration vs National Responsiveness

• Multinational is responsiveness
  • portfolio of local opportunities, local adaptions
  • national companies, each headed by their own entrepreneur
  • inefficient manufacturing infrastructure within the company
• Global is integration
  • world is one unit
• Transnational is both global and multinational
  • everywhere
• International is an in between of Global and multinational
  • domestic then international, domestic first view

What Three Global Giants Teach Us About International Expansion

Sher-Wood Hockey Sticks: Global Sourcing

• question is to move production of high-end composite sticks to China
• losing market share
• hockey stick
  • lightness, responsiveness and “the feel.”
  • wood, aluminum, or composite
  • composite developed in mid 1990s
  • case takes place in 2011
  • strong positions if endorsed by pros
• professional players had custom designs
• onshoring, nearshoring, offshoring

Understanding the international context

PEST(EL)

What could happen going forward. Conclusions: want to take the probability into account to determine whether to make a decision. Identity current and future trends, summarize on supply, demand, and competition to link to Porter’s 5 forces.

• Political
• Economical
• Socio-cultural
• Technological
• Environmental
• Legal

International Context

• Global integration and coordination
  • Factor costs
  • Economies of scale and scope
  • Liberalized environment for trade
• Local differentiation and responsiveness
  • Cultural differences
  • Countries current situation plus government demands

World of opportunities: https://www.hofstede-insights.com/country-comparison-tool

Local Differentiation and Responsiveness

General Motors is reported to have faced difficulties in selling the popular Chevrolet Nova in Mexico, where the product name sounded like “no va,” meaning “does not go” in Spanish.

Cultural, government demands, pressure to localize

Increased need for rapid and coordinated

• Shortening product life-cycles
• Increased cost of R&D
• Emergence of global technology standards
• Competitors’ ability to develop and diffuse innovation globally

Innovation and Learning

Deglobalization

Are Businesses Ready for Deglobalization?

• Splinternet

  Such a technological fragmentation [(censorships of web platforms by different countries)] would disrupt global supply chains [(in which manner?)] — which enable global corporations to gain a competitive edge by selecting the most cost-effective solution at each stage of the production process. And the move away from such centralized procurement [(what is the procurement and what makes it centralized?)] raises the costs of and reduces the efficiency gains from shared global services [(like what?)].

• War for talent
• Corporate Finances and Regulatory Regimes

Political Risks

• corruption indexes
• http://www.transparency.org/gcb2013
• Understand
  • risk appetite
  • shared understanding
  • reduce blind spots
• Analyze
  • how to get good information
  • ensure rigorous analysis
  • integration
• Mitigate
  • reduce exposure
  • system and team for timely warning and action
  • limiting damage when something bad happens
• Respond
  • Capitalizing on near misses???
  • Effective reaction
  • Continuous learning mechanisms

American Factory

• No context that GM literally failed

• Chevrolet S-10 was the first car made in 1982

• Union Auto Workers Union

• You can’t smell Fuyao without F-U

• Is Fuyao an example of “How to take on the World”?

  • Fuyao is a company for automobile glass, 70% of the market.
  • Melding US and Chinese culture
  • No union
  • Used to be a GM motors plant, leaving 2,000 families unemployed and now 1,000 employees employed

• What were the major issues that impacted the company performance?

  • Americans had fat fingers LOL and were slow
  • Water spots
  • Draining the washer
  • Americans afraid of heat

• What do you think the company did well?

  • Chinese national pride

• What could the company have done better?

  • Safety
  • employees local responsiveness
  • Thinking and planning operations efficiency before opening the plant

• Was there anything that surprised you?

  • GM was paying $29.4/hr in 2008…
  • Fuyao was paying $12.84
  • People lost their homes when they lost their jobs at GM
  • This guy was eating two twinkies for lunch
  • The Washington Post picking out the pro union worker out of 2,000 workers
  • The U.S senator was bold to trash talk the company at their event
  • The exact time there is an audit and video recording, the glass breaks
  • Attendance counting at the Chinese plant
  • Tens of millions of dollars were given by Dayton

• What is your most important learning from this film?

  • The rat race is not attractive
  • Need to get into politics because that’s where the good life is at it seems

The anti-union consulting should be banned. It’s classic union busting. Let unions fail naturally. Employers should not be able to pay consultants to avoid unions.

Unionization failed 40% to 60%.

Worldwide Competitive Advantage

Goals

• Efficiency
  • value of outputs / value of inputs
• Flexibility
  • macroeconomic risks
  • political risks
  • competitive risks
  • resource risks
  • requires management to scan its broad environment to detect changes and discontinuities and then respond to the new situation in the context of the worldwide business.
• Learning
  • diverse operating environments lead to stimuli that developes diverse capabilities

Building Multinational Flexibility

The ability to manage risks and exploit opportunities arising from the diversity and volatility of the global environment.

Diversity and Volatility

• Macroeconomic (FX, price changes)
• Political risks
• Competitive risks (competitor’s actions)

Requirements

• Scanning and responding to discontinuities
• Selecting mos attractive markets

Building Worldwide Learning

• Capture external diversity
• Leverage internal variety
  • Worldwide human resources
  • Opportunity to leverage central and local innovations
  • Create true global innovation by linking sensing

Strategic Goals

• National differences
• Scale economies
• Scope economies

How to use these to our advantages?

• Need to pick position and find niche in marketplace
• Standardization

Traditional Strategic Postures

• International strategy
  • Home country
• Multinational
  • Differentiation (revenue at site)
• Global
  • Global efficiency

Managing Differences

• Triple A

  • Adaption: adapting product for the target to increase market share
  • Aggregation: deliver economies of scale through regional or global operations
  • Arbitrage: exploitation of differences between national and regional markets

• Competitive advantage: why globalize at all

• Configuration: location of overseas operations

• Coordination: how to connect international operations

Triple A Strategy

• focus on one or two As
• New elements need to fit well

Leading Change

Why do transformation efforts fails?

United Cereal

• Lora Brill: United Cereal’s European vice president
• March 2010
• Healthy Berry Crunch, a new breakfast cereal that the French subsidiary wanted to launch
• Started by Jed Thomson in 1910 at his grocery store in Kalamazoo, Michigan
• main competitor is Kellogs
• Local markets resulted in 25% higher SG&A expenses than in the US
• National subsidiaries each lead by a Country Manager (CM) because of major differences
  • lead to contradictions in marketing
• most CMs now favored product extensions over new product introductions, and many increasingly relied on cost reductions in their existing portfolios to maintain profits
• Arne Olsen, a Norwegian appointed as UC’s European VP in 2002 - 2006
• PodCafé debacle
  • First launched in Germany, but three years later copycat products showed up in other countries
• Jorge Sanchez Division VP - Southern Europe
• Jean-Luc Michel, Country Manager France

1. If you were Lora Brill, would you authorize the launch of Healthy Berry Crunch in France?

   Yes, because competitors are also doing it and the repurchase percentage consideration is more than 60%

2. Is United Cereal a centralized or decentralized organization?

   • Centralized in terms of decision making and organization structure.
   • Decentralized because of product adaptions in every nation

3. Should Healthy Berry Crunch become a Eurobrand? Why or why not?

   No because the organization structure is not simple to covey and results in each VP taking on more responsibilities. Then there’s the issue that each country would have to be on board and be capable of also launching products. Spain and Italy are not going to be able to keep up. The test cases were’t done in every country either. If the overall goal is to prove that a Euro brand strategy is viable, then the first case product should be crystal clear.

4. What would you recommend if you were Lora?

   Launch Healthy Berry Crunch and create a reorganization plan so that the next product can become the Eurobrand.

5. How would you implement tour recommendation

   The two issues is the organization structure with regards to Eurobrands and the budgets for each subsidiary. With regards to organization, there needs to be a straight forward approach as James Miller said. A European product structure where there is clear authority for decision making. This would also result in lower SG&A expenses as decision making is now a stream lined process.

Developing a Transnational Organization

• Foreign product diversity vs Foreign Sales as a Percentage of Total Sales

Global matrix structure has fallen out of favour.

• Complex and bureaucratic
• Dual reporting caused confusion

Administrative Heritage

archetypes:

a. European empire (multinational model) - portfolio management b. American empire (international model) c. Japanese empire (global model)

Competing in teh age of AI

• ANT financial, 10x the customers of largest US banks, with one tenth the employees. Leverages AI to approve loans a
• weak AI is enough
  • perform tasks traditionally done by humans

Have you restructured for global success?

• emerging markets are stars, developed world is cash-cow
• emerging market talent-pool
  • interoperability
• leadership has to come from developed markets
• upper echelon’s theory: composition of top management affects strategic choices
• emergin market entreprenuers are more ambitious
• low-income and budgets

Beiersdorf AG

• Skin care, NIVEA
• the last quarter of 2011 had ended with a loss.
• local adaptation strategy
• restructuring was focused on get closer to becoming the world’s best skin care company.
• Old ceo was Quaas
• Markus Pinger left for obvious reasons since he did not become CEO
• Heidenreich: strong-willed and dynamic but also risk-seeking and aggressive
• Hamburg-based Global Research Center
  • Can account for climates in Asia and Latin America, not just Germany / Europe

1. What were the building blocks of the company’s success?

• innovation driven
• scientific and medical

2. What internal and external factors led the company to restructuring?

• recession leading to lower growth in consumers division and a decrease in overall revenue
• inflation was 2.7% and consumer spending was up only 0.5%

3. Did the restructuring effort address these issues? What do you think was done well? What still needs to be done?

• not really
• the restructuring efforts looked more like a cost/efficiency change leading to all executive board members leaving

4. On April 27th 2012, Heidenreich was appointed the new CEO. Is he the right person to lead the change? What challenges did he face from his predecessor? How should he proceed?

• Maybe.
• worked at Hero
• In his previous position at Hero, where he had been the CEO for seven years, Heidenreich convinced many investors of his ability to generate continuous profits and grow share prices
• Hero had undergone major restructuring efforts and also had a majority shareholder

Worldwide Innovation and Learning

Innovation comes in multiple forms:

• New technology-based products

• Organizational effectiveness breakthroughs

• Pioneering marketing strategies

• Leading-edge manufacturing processes

• Logistics innovations

• R&D expenditure globally more than doubled between 1992-2010

• Worldwide patent application

• Intangible asset valuations rose higher

Competitive battles:

• Sensing
• Responding
• Implementing

Traditional innovation

• Center-for-global
  • HQ senses opportunities
  • Dominate in international and global companies
  • Problem: market insensitivity, imperialism, fading of competitive advantage
• Local-for-local
  • Distributed assets and resources allow local response
  • multinational strategic model
  • Duplication possible, reinventing the wheel
• Locally leveraged
  • Special resources and capabilities of each national subsidiary are available to other units as well
• Globally linked
  • Resources and capabilities of many unites (center and subsidiaries) pooled to jointly create and manage an activity

Making Transnational processes Feasible

Three simplifying assumptions:

1. Subsidiaries should be symmetrical
2. HQ-subsidiary relationship is based on clear patterns of dependence or independence
3. Corporate management exercises decision-making and control uniformly

• From Symmetry to Differentiation
  • Demands for integration and responsiveness need to be addressed separately for each business, function, and geographic region
• From Dependence / Independence to Interdependence
  • Implementation of an integrated network and inter-unit integration mechanisms
• From Simple Control to Flexible Coordination
  • Complex coordination of the flow of goods, resources, and knowledge: formalization, centralization, and socialization process

Problems

• Center-for-global innovation
  • Risk of market insensitivity, imperialism
• Local-for-local innovation
  • Risk of duplication, reinventing the wheel
• Locally leveraged innovation
  • Threatened by not-invented-here (NIH)
• Globally linked innovation
  • High coordination costs

How GE is disrupting itself (HBR 2009)

Reverse innovation is creating products in an emerging economy to meet the local needs and then bringing this product to a developed economy through adaption cannibalization of existing products. One example of reverse innovation is a $1,000 handheld electrocardio-gram device developed for rural India which also started being sold in the United States for different uses. Reverse innovation is the opposite of the standard glocalization approach taken by most manufacturing firms based in rich countries.

THE CHANGING FACE OF INNOVATION IN CHINA

The first step is to ensure local representation which I agree with however it also says “local R&D management style better suited to Chinese sensitivities” which in my opinion isn’t a 100% guarantee or objectively better. Management style is subjective and so if anything, the style should be whichever one results in higher productivity. Sure it could be that being better suited to Chinese sensitivities is correct, or maybe the original management style was lacking already. There isn’t only one management style in north america so obviously there isn’t only one in China. The next step is to speed up the patenting when trade secrets is not strategic. I don’t agree with this from a philosophical point of view because the government point of patents is to dissuade trade secrets but leveraging the patent policy because trade secrets is non-strategic goes against what the patent system was about. In these cases, the innovation should be multi-group just like the media codec VP9 vs. the proprietary H265. Innovation isn’t just an individual corporation point of view, but a macro-economical point of view itself. If we told every individual to only look out for themselves, then there would be vast social problems and high crime rates because no one wants to work towards a greater cause. The last step is to integrate R&D and IP management competencies. Although I disagree with mass patenting, I can agree that when patents are acquired as originally intended, it’s utility should be maximized rather than ignored; This can be done by the R&D department communicating with the IP management either through 1:1 or through a middle manager in charge of this task.

TedX Video

What is reverse innovation?

• Develop products for markets in emerging economies
• Sell in developed markets

Example: the electrocardiogram device for rural India and the ultrasound machine for rural China

Why is it important? • Many emerging markets are no longer small • They have high growth rates • Glocalization ignored faster growing middle or lower-end customer segment in emerging markets • Potential local new entrants can enter developed markets with low cost alternatives Reversed innovation isn’t optional, its oxygen!

• decentralization
• traditional centralized structures provide cost benefits

Project-level actions Establish Local Growth Teams (LGTs) 1.Shift the power to where the growth is Authority to decide what to develop and how to produce, sell, and service 2.Build new offerings from the ground up 3.Build LGT from ground up 4.Customize objectives, targets, measure 5.report to someone high in the organization

China

Foreign companies must retool their R&D strategies to keep pace with newly innovative Chinese enterprises.

Foreignness is becoming a liability • Intellectual property (IP) regime has strengthened • Risks with keeping and sharing advanced technology • Innovation transaction costs can jeopardize the lead • Time to market of innovative products and services

Strike a balance between localization and the growing liability of foreignness; • Engage in cutting edge research when returns exceed global; • Focus talent, culture and operations toward faster time to market.

Answers

Three important capabilities that are necessary for effective central innovation are: taking in information from subsidiaries to the centralized head quarter through the use of creating linkages (taskforce focusing on a region, activities, meetings, etc.) that increase interaction between local managers and the central head quarters; ensuring that all functional tasks are linked to market needs through the use of direct consumer contact and feedback; and integrating value-chain functions by managing the transfer of responsibilities across development, production, and marketing. The goal of managing responsibility transfer is to reduce the loss of proximity from a centralized approach to development↔marketing rather than a decentralized approach where the functions are close to each other. Thus, the last capability is to ensure that research, production, and marketing remains as integrated in a centralized perspective as was by default in the local-for-local innovation.

One capability to make local innovations efficient is to empower the local management. Local management referring to managers of the subsidiaries. Empowering local management means to hand over, or delegate, organization resources and decision making authority to the subsidiary managers. It could be as simple as investing assets into the subsidiary because then the innovation would be local led even if the starting direction was done by the central HQ. Another capability is to provide a link (collaboration) between the different federations so that knowledge and techniques can be shared without reinventing the wheel. Lastly, there needs to be cross-functional integration at all local subsidiaries to ensure that the ideas being generated are high quality.

One capability necessary for making innovations feasible is to make each subsidiary differentiate itself where it needs to to avoid resource misallocation and competing ineffectively. Therefore, integration and responsiveness needs to be tweaked separately for each subsidiary. A second capability is interdependence which requires the existence of roles in the organization that creates a network such that information is always relayed will reach someone in central or local regardless of where the information is coming from. There also needs to be integration between units so that units are not in conflict with each other. The last capability is to allow for flexibility in coordination and control. In other words, being stringent results in one way to do something even if it may not be optimal whereas flexibility means having sophisticated processes to deal with different issues in appropriate more caring manners.

P&G JAPAN: THE SK-II GLOBALIZATION PROJECT

In November 1999, Paolo de Cesare was preparing for a meeting with the Global Leadership Team (GLT) of P&G’s Beauty Care Global Business Unit (GBU) to present his analysis of whether SK-II, a prestige skin care line from Japan, should become a global P&G brand.

president of Max Factor Japan, the hub of P&G’s fast-growing cosmetics business in Asia

proposal to expand SK-II into China and Europe.

Chairing the GLT meeting was Alan (“A. G.”) Lafley, head of P&G’s Beauty Care GBU, to which de Cesare reported

In 1985, as the first step in developing a program hecalled “Ichidai Hiyaku” (“The Great Flying Leap”), new country GM Durk Jager analyzed the causes of P&G’s spectacular failure in Japan. the company had not recognized the distinctive needs and habits of the very demanding Japanese consumer. (For instance, P&G Japan had built its laundry-detergent business around All Temperature Cheer, a product that ignored the Japanese practice of doing the laundry in tap water, not a range of water temperatures.)

Increased R&D size

1991 bubble burst causing 20% total decline.

Implementing O2005, as it came to be called, he promised would bring 13% to 15% annual earnings growth and would result in $900 million in annual savings starting in 2004. Implementation would be painful, he warned; in the first five years, it called for the closing of 10 plants and the loss of 15,000 jobs–13% of the worldwide workforce. The cost of the restructuring was estimated at $1.9 billion, with $1 billion of that total forecast for 1999 and 2000.

“And if you are worried about oversight,” he said, “I am the portfolio manager.

Lots of bureaucratic cutting.

Max Faxtor is the company they acquired.

Cross-border Collaboration

Types of Arrangement

• Cooperation or Agreement
• Patent licensing
• Franchising
• R&D Consortia
• Co-production / buyback
• Joint Venture (equity participation)

Motivators

• Capital
• Technology exchange
  • necessary resources are beyond scope of the firm
• Global
• Industry
• Economies of scale and reduction of risk
• Alliances as an alternative to mergers

Honda blind spot detector. Might not be available. What if Honda used the patent instead and paid off any lawsuit?

Risks

• when one skill is easily observable and can be learned but the other is too complex
• one way dependence in order to erode competitive position
• takeover risk

Cost of Strategic and Organizational Complexity

• broad range of activities

Building and Managing Collaborative Ventures

• Pre-alliance
  • Selection
  • Escalating commitment
  • Simplicity and Flexibility
• Post-alliance
  • Managing the boundary
  • Managing knowledge flows
  • Providing strategic direction

Reading: How to manage alliances better than one at a time (MIT Sloan Management Review, Spring 2010)

Reading: Joint Ventures and Partnerships in a Downturn (Harvard Business Review September 2020)

Companies will need every tool they’ve got to survive the downturn and rev up their businesses as the economy rights itself. They’ll have to rewire operations, reallocate resources, and in some cases reinvent business models

Case: Nora-Sakari: A Proposed JV In Malaysia

• On Monday, March 11, 2013, Zainal Hashim, vice-chairman of Nora Holdings Sdn Bhd (Nora). Meeting in Kuala Lumpur (KL), Malaysia

  • Nora was a leading supplier of telecommunications (telecom) equipment in Malaysia

• Negotiating with Sakari Oy2 (Sakari) of Finland

  • leader in the manufacture and deployment of mobile broadband network infrastructure

• Joint venture negotiation

  • manufacture and commission 4G (fourth generation) mobile network equipment in Malaysia

• In August 2012, TMB called for tenders to bid on a two-year project worth RM1 billion for building an LTE radio access network in various parts of the country.

• Local tellecom’s often needed partnerships with MNCs because they lacked the technological capabilities themselves

• Sakari’s SK4LTE platform was criticized for failing to make any impact in the United States, one of the world’s largest and most important mobile markets.

• WOS: wholly owned subsidiary legalized in Malyasis, however JV’s still seen as more efficient

• Negotiation

  • Nora’s general manager for corporate planning division, an accountant, two engineers, and Marina Mohamed, a lawyer
  • Kuusisto, Sakari’s vice-president. His team comprised Junttila, Hussein Ghazi, Aziz Majid, three engineers, and Julia Ruola, a lawyer. Ghazi was Sakari’s senior manager who was of Egyptian origin and also a Muslim who had worked for Sakari for more than 20 years, while Aziz, a Malay, had been Sakari’s manager for more than 12 years.

• Nora’s capability in penetrating the Southeast Asian market. Other issues included Sakari’s concerns over the efficiency of Malaysian workers in manufacturing, maintaining product quality and ensuring prompt deliveries.

1. Why have negotiations failed to result in an agreement?

   • Zainal admitted making the mistake of applying the approach he often used when negotiating with companies based in North America or the United Kingdom
   • Negotiators from the U.S. tend to be very open and often state their positions early and definitively
   • Sakari negotiators are serious, reserved and ‘cold.’
     • it was difficult to determine whether they are really interested in the deal or not.
   • Equity Ownership
     • Sakari proposed an equity split of 49 per cent for Sakari and 51 per cent for Nora. Nora, on the other hand, proposed a 30 per cent Sakari and 70 per cent Nora split
     • foreign equity ownership rules of 30% liberalized by the Malaysian government effective July 1998
     • Nora had concerns about its ability to exert control over the JV because it was intended as a key part of its longterm strategy to develop its own mobile broadband equipment and related high-tech products
     • Nora wants a technology transfer, whereas Sakari wants that protected
   • Royalty payments
     • 5% of gross sales Sakari, 2% of net sales Nora
   • Salaries
     • Sakari’s offer was exorbitant
     • Take-it-or-lave it stance adopted by Nora
     • Sakari would have to subsidize the difference (are they really being paid $300,000?)
   • Arbitration

2. What is motivation of each company?

   • Sakari
     • Growth, concerned about tech leakage
   • Nora
     • Sustainable technological knowledge gain

3. As Zainal, what are your options to fulfill the TMB contract?

   • Samsug, Sakari, NEC

4. What criteria could be used to facilitate agreement between the companies?

   • TEST For class, be prepared to act as part of the negotiation team for either company. You will be challenged to come up with an agreement that meets the objectives of both companies

Implementing Strategy

Geographical Subsidiary Manager

• Role as a national defender and advocate
• Need for national responsiveness

How to respond to resistance to globalization

• Determine if willing to take leadership role on dealing with underlying issues

Four MNE positions

• Exploitive (take advantage of disadvantage)
  • low-cost labour, subsidized investment
  • expand regardless of economic, social, or cultural change
  • no responsibility
  • adversarial relationship with NGOs
• Transaction (doing deals, respecting laws)
  • legally compliant
  • non-oppressive
  • does not pursue bottom line at all cost
  • no inappropriate products promoted
  • NGO relationship based on monitoring and challenging
• Responsive (making a difference)
  • temp
• Transformative (leading broad change)
  • temp

Case: Silvio Napoli at Schindler India (A)

• Silvio Napoli
  • New Delhi
  • First floor got floded (lmao the monsoon season)
  • Luc Bonnard, vice chairman, board of directors of Schindler Holdings Ltd., the respected Swiss-based manufacturer of elevators and escalators.
  • It was November 1998, and vice chairman Luc Bonnard was visiting New Delhi for the first time to review progress on the start-up of the company’s Indian subsidiary
  • Napoli running this
• Napoli, a 33-year-old Italian former semipro- fessional rugby player, had arrived in March with his pregnant wife and two young children
• new from scratch
• Since March, he had established offices in New Delhi and Mum-bai, hired five Indian top managers, and begun to implement the aggressive business plan he had written the previous year while head of corporate planning in Switzerland
• $10m investment
  • “core, standardized products,” with no allowance for customization.
  • India has high import tariffs
  • outsource manufacturing and logistics to local suppliers
• Three problems
  • order for a nonstandard product–calling for a glass rear wall in one of the supposedly standard elevators
  • unanticipated rise in transfer prices for the “low-cost” components and materials imported from Schindler’s European factories
    • a large increase in customs duties on imported elevator components,
  • requests for parts lists, design specifications, and engineering support not forthcoming from Schindler’s European plants
• Eight months in India and he still had not installed a single elevator, while his plan showed first-year sales of 50 units.
• tech leader in elevators
• Alfred Schindler saw India as a second China
• ECE in 1958 for local distribution
• Bharat Bijlee Ltd. (BBL) in 1985
  • 12% stake
  • 10-15% market share
  • ended in 1996
• head of corporate planning
• Executive committee: Alfred Schindler, Luc Bonnard, and Alfred Spöerri (CFO)
• Swatch Project (1995)
  • margins eroding
  • new products were a vital source of profitable long-term maintenance and service contracts,
  • develop standardized elevator at lower cost
  • plants in Switzerland, France, and Spain
  • S001 developed, halved the industry standard 20-30 week cycle time
  • supply chain redesigned
• Egon Zehnder for searching top management
• On his first day in the Delhi office, Napoli got stuck in one of BBL’s elevators. As he recalled, it proved to be an omen of things to come
• all types of characters started to approach me offering their services
• With the exception of Mitsubishi, all multinational players relied on local manufacturing for the majority of their components.
• Otis is the number one competitor
• seven distinct phases: engineering, production, installation, service, repair, modernization, and replacement.
• annual maintenance contracts covering routine maintenance and breakdown service were vital.
• S001 for low-rise segment
• S300P for mid-rise segment
• safety-related parts imported, S300P imported, everything else outsourced to approved local suppliers
  • maintenance would stay with Schindler
• four orders came in for the S001 but with glass wall
• S001 transfer prices were 30% above planned costs
  • increased import duties on specific “noncore goods” (22% to 56%)
• Each family has a security guard but since guards fall asleep, a man would whistle
  • but then each family paid the man not to whistle in front of their house
• no maintenance portfolio

Consider the 3 roles of a country manager:

• a Bicultural interpreter
• b National Defender
• c Frontline Implementer

Do you believe Silvio was the right choice for the general manager in India? Explain.

• Yes
  • Made business plan
  • Unproven business model
  • Aggressive personality
  • Corporate connections
  • Upside potential
• No
  • No experience to execute
  • Management style might not be suited
  • Cultural mismatch
  • Goal focused
  • Family has to move to India

As Luc Bonnard, how would you evaluate Silvio’s performance in the first 7 months?

Got everything setup, but what is the next step? What happened in the last 6 months if 1 month was given as grace period?

Should Schindler India accept the nonstandard glass wall elevator order?

Yes, a business is supposed to be a loss maker in the first year. To get an understanding of the customers’ needs.

What should Silvio do about limited support with technical issues and transfer prices?

technical, need to call someone directly to fix the problem. For transfer price, need to outsource as fast as possible or setup local plant.

Hard NOx (Dirty Money Documentary, Episode 1 Season 1)

[Watch at home before coming to class]

Uncovered in 2015 Open road emissions were 35x government testing facility (environment protection agency) Defeat devices reduced effectiveness of emissions control system when on the open road. 2009-2015. Issued notice September 18 2015. Lawsuits on every country. 32B in total.

Nitrogen oxide emissions. 60 premature deaths.

Started by Hitler. Counter culture. New CEO wanted to expand diesel sales from 2007 in the USA. Strategy 2018

Portrayed itself as a company of ethical culture , good corporate governance effective risk management and strong sustainability commitment

Diesel is more efficient and less CO2 but produces NOx which harms lungs.

Martin Wintercorn

Cars so good people wanted to see how to share this tech to other companies. John German ICCT

JRC 2011-2012 report on EU diesel vehicles.

2013 test Volkswagen clean. First in lab then on road. Car geeks university of Virginia .

Emerging Markets

The New Mission for Multinationals (MIT, 2015)

• foreignness into a virtue. For example, Coca-Cola, Levi Strauss and Disney can continue to sell a piece of American life-style, Prada can continue to clothe its foreign customers in Italian fashion sense
• home team advantages
  • deep customer and end-user engagement
  • partnering with local suppliers
  • fostering development of local talent pool
• acquire a local company and maintain links
• enter the market early

The new frontiers (Harvard Business Review, July-August 2009)

• China acquire more than 1,000 swedish businesses
• top investor economies in Africa
  • France, Netherlands, United States, UK

New business models in emerging markets (Harvard Business Review, January-February 2011)

Case: GENICON - A Surgical Strike into Emerging Markets

• manufactured and distributed medical devices used in laparoscopic surgery
  • examine, diagnose and treat problems within the abdomen
  • specialized surgical instruments are inserted through a number of small incisions
  • hospitals favoured less expensive reusable and/or reprocessed devices instead of premium-priced disposable
  • approx. half of surgeries performed in the U.S.A
  • MEDICA tradeshow in German was very helpful
  • 30 companies, tender was a license to sell, not a sale
• January 2010
• international distribution strategy
• companies received contracts through Group purchasing organizations (GPOs) in the USA
  • favoured largest companies, like Ethicon and Covidien, subsidiaries of Johnson & Johnson and Tyco respectively:
• Promising countries: India, China, Brazil, Russia
  • India
    • $2.35B medical device market
    • 11.3% growth
    • GDP 1,106B
  • China
    • $12.6B medical devices with double digit growth; $20.6B by 2012
    • downwards pressure on price
  • Brazil: there were no import duties or value-added taxes on 42 medical devices.
    • $3B medical devices
  • Russia: $39.4B healthcare expenditure, $2B medical device sector
    • requires local distributor or Russian subsidiary

1. Evaluate the potential of each market from a quantitative and qualitative standpoint. Which factors are most important in your decision?

How big the market is. How profitable the market is. How easily accessible the market is; barriers to entry.

2. What country is the best fit for Genicon?

Brazil because there won’t be downward price pressures and market is second largest of the four countries and there are low barriers to exporting to Brazil.

Reading: Reaching the rich world’s poorest consumers (Harvard Business Review, September 2015)

• Five leading companies have adapted nonprofit business models to serve the bottom of the pyramid in France
• Social businesses
  • First, it seeks to alleviate social problems, including all forms of poverty.
  • Second, it must be run sustainably—that is, it should not lose money.
  • Third, profits—when they exist—are reinvested in the business rather than funneled back to shareholders

Reading: Is the bottom of the pyramid really for you? (Harvard Business Review, March 2011)

Case: Danimal in South Africa - Management Innovation at the Bottom of the Pyramid

• South African dairy industry
• innovative product yogurt, Danimal
  • introduced to evaluate the possibility of profitably serve this market
  • creating brand awareness in the market at the base of the pyramid
• micro-distributors, referred Danimamas: women that were the villagers, unemployed or underemployed persons
• not a sustainable business model in terms of current profitability
• The girl involved was really pro-Africa and wanted to know if it would work
• long-term opportunity
• started working on it in 2003 and it’s now 2011
• Change in senior leadership could ruin everything
• R&D in the bottom of pyramid countries
• lot of work done in country level to develop products that suit that particular country
• yogurt was picked because there was excess capacity
• joining other companies & NGOs
  • build on women
    • cash was an issue
    • can tell employees who care and who don’t care
    • no second chance
• Support initiatives to remove barriers
  • tough to hold someone accountable for cash
  • digital transactions were introduced to have more control and oversight
• First create was free

12 Principles of Base of Pyramids

Applying to the case

1. Price/Performance
   • 1 RADD
   • sold directly
2. Innovation requires hybrid solutions -taget children
   • build on plant
   • diston
3. Solutions must be scalable + trnsferable across countries / cultures
4. Innovations must focus on cornering resources
9. Product must work in hostile environment
10. Research and interfaces is critical
    • recon was done on how many friges there were. Where were the schools, banks, stores
    • someone from south america had done it
    • learn what the infrastructure of the country
11. innovation must reach the consumer
12. productionn innovators must focus on platform so new features can be incorporated