International Business Assignment

International Business Assignment

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International Business Assignment

Question 1

Most of the investment outlays made in the United States by foreign firms focus on acquiring existing companies rather than establishing new ones. One of the main reasons for this action involves increasing productivity among local firms. The sources of production gains relate to the capability of international multinationals. This capability involves the ability to relocate advanced technology, convey organizational capital and offer entrance to foreign capital markets. Additionally, it is also notable that a majority of foreign firms acquiring U.S companies belong to emerging markets. This is due to the upsurge of dollar reserves within emerging markets and the responsibility of sovereign wealth finances (Chari, Chen & Dominguez, 2012). These factors act as further incentives for foreign organizations to acquire existing U.S. firms. Another reason for acquiring U.S companies by foreign firms involves the transfer of manufacturing activity. Normally, firms within developed countries make Foreign Direct Investment (FDI) to emerging markets in order to lower costs of labor. This enables them to create marginal revenues from marginal labor and thus supplementary profits. However, in this case, foreign firms acquire U.S companies in order to shift manufacturing activity. This allows the acquirers to sustain their distribution networks within the acquired firms’ host country. Furthermore, another common motivation for acquisition of U.S firms involves entering novel markets. Developed markets such as the U.S markets possess considerable opportunities for foreign firms. These opportunities comprise factors such as the entrance to other inferior markets. Developed markets usually possess access to other inferior markets especially in developing countries. This will enable foreign firms to penetrate such markets through acquisition of existing U.S firms.

Other incentives for acquiring U.S firms by foreign firms comprise attaining natural resources, gaining advanced technology and associated brand equity. These incentives also relate to the motive for entering new markets. Foreign firms acquire existing U.S companies in order to take advantage of resources that are absent within their markets. Additionally, foreign firms will also establish corporate takeovers for purposes of augmenting their technological capabilities (Feliciano & Lipsey, 2010). Furthermore, these subsequent motivations will allow such firms to amplify their brand by acquiring recognized brands. An instance that depicts these aspects comprises the takeover of one of IBM’s sectors by Lenovo in 2004. Lenovo acquired IBM’s Personal Computer Business in 2005. This strategy involved access to U.S market, possession of technology, and of a reputable brand. However, there is also a degree of foreign investment in U.S markets for establishing new investments. These new investments gain definition as Greenfield Investments. Greenfield investments comprise new companies established by foreign firms within the U.S market. Usually, there is considerable preference for the establishment of new companies within the market. This is because such investments increase local employment. This is different from foreign takeovers, which add a diminutive advantage to the existing market. Greenfield investments allow for the creation of novel business entities and extension of existing firms. This presents considerable advantages for the country, not only in terms of employment increase. Establishment of new firms will also allow the creation of novel production capacity as well as the relocation of technology and knowledge. Additionally, Greenfield investments also facilitate connections to international markets. However, Greenfield investments present significant disadvantages to the host country. Usually, the gains that arise from production trickle back to the multinational’s economy.

There is evidence of significant investment in U.S. These investments occur in the form of acquisitions and Greenfield operations. A formidable example of an acquisition of an existing U.S firm is the acquisition of IBM’s Personal Computer Business Division by Lenovo in 2005. Lenovo acquired the asset for US$ 1.75 billion dollars. The strategy that Lenovo employed focused on three main aspects. Firstly, Lenovo is a multinational Chinese technology corporation. In order to penetrate a developed market such as the U.S technology market, it required acquiring a reputable brand in order to establish its presence in the country. Thus, one of the main reasons for using an acquisition strategy involved satisfying its globalization and attaining international leadership in Personal Computers. Additionally, Lenovo also acquired IBM’s PC sector in order to establish immediate existence and exposure outside China. Furthermore, Lenovo augmented its own brand by acquiring IBM’s established brands, which comprised ThinkPad, ThinkCentre, ThinkVision and ThinkVantage. Therefore, Lenovo’s acquisition strategy assisted it in establishing a single global brand due to increased international awareness from the brands. In contrast to this strategy, Suntech Power, another Chinese solar technology firm engaged in Greenfield operations in San Francisco, in 2007. Commencing its operations, Suntech began with five employees. However, by 2010, the firm already created 2000 jobs. The main incentive for Suntech’s move involved the exploitation of the manufacturing industry. This allowed the firm to gain a considerable amount of skilled labor in a very short time. Additionally, creating new jobs in the country obviously came with incentives such as tax holidays. Furthermore, Suntech exploited the solar technology market in the U.S by establishing itself in a market that was yet to grow. Thus, Suntech achieved global status as one of the first multinational corporation to introduce eco-friendly technology in the U.S market.

 

References

Chari, A., Chen, W., & Dominguez, K. M. E. (2012). Foreign ownership and firm performance: Emerging market acquisitions in the United States. IMF Economic Review, 60(1), 1-42.

Feliciano, Z., & Lipsey, R. E. (2010). Foreign entry into U.S. manufacturing by takeovers and the creation of new firms. National Bureau of Economic Research Working Paper Series, 1(9122), 1-23.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Question 2

Since its incorporation in 1943, in Sweden, IKEA continues to offer furnishings and well-designed accessories for homes at low costs. The multinational retailer possesses 300 superstores in 35 nations. Regardless of its presence in different countries, IKEA utilizes the Standardization Approach in delivering its products to its disparate consumers. According to Kotler & Keller (2012), standardization involves utilizing similar marketing mix in different international markets. The standardized marketing mix involves using the same product, advertising strategy, distribution network as well as various essentials of the mix within different markets. Nonetheless, IKEA’s key approach comprises providing similar products while taking advantage of similar marketing strategies in foreign markets. The basis of this concept allows the maintenance of similarity in every market the firm penetrates. Typically, customers know IKEA based on the similarity of their stores and the organization of their merchandise. Usually, the colors used to paint their stores are similar in every market. Furthermore, the organization of their merchandise is also analogous in all markets. All furniture possess the name ‘Sten’ or ‘Ivar’ as well as comparable model numbers. IKEA’s stores offer self-service provisions. They employ the Do It Yourself (DIY) strategy whereby clients compare similar furniture parts and assemble them at their homes. Nonetheless, the standardization concept allows the multinational firm to gain superior advantages. Firstly, the approach enables IKEA to save on costs. In this case, cost saving results from producing similar products irrespective of different markets. Furthermore, market standardization also enables the organization to mitigate extraneous costs especially in adopting new advertising and positioning strategies that may be expensive for the firm. Furthermore, IKEA is also able to exploit the economies of location and scale in different markets. This is because the firm attains the opportunity to generate product inventories or constituents in a small number of locations.

IKEA has standardized various aspects of its retail business. One of these aspects is Merchandise. In general, merchandise comprises the development of an appealing variety of commodities for the customer to purchase within the store. This activity involves the assortment of retailer and nationwide brands, the breadth and depth of the commodity range. Furthermore, the aspect also includes the strategy for pricing and the creation of commodity prices (Burt, Johansson & Thelander, 2011). The second aspect comprises Location and Store Design. This aspect of IKEA’s business involves the places where retailers institute their outlets. In this case, the location comprises the area in which the outlet is situated. Accordingly, the Store Design involves the general configuration of the outlet based on physical attributes. The next aspect is the Service and Selling Surrounding. This feature of business mainly relates to the respective store. Thus, it comprises a number of dimensions that constitute the surrounding of the in-store. Additionally, the Service and Selling Surrounding inculcates the general arrangement and the ambience within the store. Furthermore, other components such as degrees of service and the service itself also gain consideration in this aspect since they build the selling environs. The last aspect comprises Market Communication. Market communication comprises the conventional techniques used in marketing activities (Burt, Johansson & Thelander, 2011). These techniques comprise activities such as advertising, for instance television, print or outdoor advertising. They also comprise tools such as promotion. Both of these strategies assist retailers in establishing communication with clients. Additionally, techniques such as direct or indirect marketing, directories and Internet also gain inclusion as techniques within market communication. This is because they gain a view as objects that enable interaction with the consumer.

IKEA standardizes various aspects of its business areas. The business areas, which comprise merchandise, location and store design and the service and selling milieu, illustrate the similarity of IKEA’s business irrespective of markets. However, only three aspects will undergo consideration in illustrating IKEA’s standardization in a foreign market. The market selected for this assessment is the United Kingdom. According to Burt, Johansson & Thelander (2011), the United Kingdom comprises one of the largest markets for IKEA. This is notable by the number of years IKEA has conducted its operations since 1987. IKEA operates over 18 stores in the country. The main target group in this market comprises mainly family Middle-Class Women aged between 25 and 45. This target by IKEA establishes the disparity concerning products and commodity groups. The first aspect, merchandise, depicts the commodity range and the product price. The range in stores is similar to other global markets. However, there are diminutive differences in the commodity ranges. For instance, the beds in UK outlets are bigger. Additionally, there is use of the general supply chain in UK. Europe sources bulkier commodities while other parts in the globe source accessories. Furthermore, UK dictates low prices and a high value image, which is similar to all other IKEA markets globally. The second aspect, Location and Store Design, further shows IKEA’s standardization in its different markets. The set-up of the stores indicates this. This is because the store designs, especially in out-of-town locations are similar to other store set-ups in similar locations within other countries. The third area of business, Selling and Service Surrounding, illustrates standardization in the UK market, as well. One of the main features depicting this involves the DIY concept. Typically, a majority of British civilians own houses, this makes it easy for IKEA to stress the DIY concept when selling its products in UK stores. Additionally, the positioning of the product prices is also similar to other IKEA global markets.

References

Burt, S., Johansson, U., & Thelander, A. (2011). Standardized marketing strategies in retailing? IKEA’s marketing strategies in Sweden, the UK and China. Journal of Retailing and Consumer Services, 18(3), 183-193.

Kotler, P., & Keller, K. L. (2012). Marketing management. Upper Saddle River, N.J.: Prentice Hall.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Question 3

To organizations, Six Sigma outlines a measure of standard that endeavors for attainable perfection. Nonetheless, the Six Sigma comprises a closely controlled, data-influenced methodology that engages in the expulsion of defects in processes that range from manufacturing to contractual and from good to service. The Six Sigma Approach comprises a collection of techniques and procedures specifically designed to enable the improvement of processes (Tennant, 2001). The approach focuses on augmenting the standard of process yields. It does this by recognizing and eliminating errors and their causes. Furthermore, it also improves process productivity by lessening the variability in commercial and manufacturing practices. The Six Sigma approach utilizes a variety of methods based specifically on quality management. These methods enable organizations to build a structure of employees based on certain certification. Based on these certifications, these employees possess expertise in the quality management methodologies. Every project based on the Six Sigma approach requires following a certain series of steps. Furthermore, these organizational projects possess computed value targets. For instance, such targets may include lessening the time in the process cycle, client utility, reducing costs and increasing profits. Additionally, these projects adhere to methodologies described as DMAIC and DMADV. The DMAIC methodology is an acronym and comprises five stages based on the capital letters. These stages constitute Define, Measure, Analyze, Improve and Control. The second methodology, DMADV, comprises Define, Measure, Analyze, Design and Verify stages. These methodologies allow the development of projects to occur quality levels emphasized by the Six Sigma approach. Additionally, it is also possible to employ the Six Sigma methodology if the existing process within an organization requires other successful features rather than incremental improvement solely.

The success that followed from the implementation of the Six Sigma influenced other organizations to apply the approach as well. For instance, the founder of the approach, Motorola Corporation reported savings amounting to US$ 17 billion from applying the Six Sigma in their process. Therefore, the proceeds arising from Six Sigma implementation influenced several multinationals as well. One of the corporations that adopted this methodology is General Electric (GE). Under Jack Welch, General Electric adopted the Six Sigma in terms of improving the quality of business processes. In 1995, Jack Welch, the CEO of General Electric implemented the Six Sigma in order to conduct cost savings. An analysis of Sigma implementation in the firm indicated that GE would save US$ 7 billion-US$ 10 billion if it increased its worth to six Sigma. For GE, adopting the Six Sigma was very ambitious. This is because implementing it required a change in business and manufacturing process. Additionally, implementing the approach in the organization would also gain resistance from employees. Thus, the aspect of status quo also presented an issue for the firm. Furthermore, applying Six Sigma to GE required dedicating a massive amount of financial resources. For instance, these resources would focus on training the employees regarding the approach. For instance, the employees required training in the certifications emphasized by the concept. These certifications highlighted specialization in quality management. Consequently, the approach recognizes various main roles for successful implementation. Therefore, in adopting the Six Sigma, GE required changing its human resource strategies especially in the areas of recruitment and selection. For instance, Jack Welch required that employees obtain a ‘Green-belt’ certification in order to gain employment within the organization. Nevertheless, regardless of the issues arising from adopting the approach, GE reaped enormous benefits arising from its actions. For instance, in 2002, GE recorded a turnover of 125.8 billion US dollars.

The quality process employed by GE focused mainly on specific areas that would directly have an impact on the clients. One of the main quality process applied by GE involved the implementation of Six Sigma certifications. These certifications allowed GE to employ quality employees by basing their merit on such credentials. Thus, most of the complicated production was under the management of employees with Green-belt certification. For instance, the GE Fanuc Automotive manufacturing factory develops quality automation commodities like programmable logic parts and industrial lasers. At this time, a group of 130 Six Sigma teams worked at this plant under the leadership of employees with Green-belt, Black-belt and Master-belt certifications (Eckes, 2005). Additionally, adoption of the Six Sigma by GE also poses benefits for employees, clients, shareholders as well as other stakeholders. For employees, adopting the Six Sigma meant that they receive training in quality management. Therefore, the approach benefited employees by enabling them increase their performance due to obtaining Six Sigma certifications after their training. Furthermore, employees also received respect as valuable assets to the company based on their certifications as well as specialization in statistical methods for quality measurement. Accordingly, GE’s adoption of the Six Sigma also benefited customers. This is because adoption of the approach meant that the production process increased in quality. In turn, quality production process led to the production of quality and high-value products that met the customer’s needs. Furthermore, adopting the approach also benefited shareholders due to the increase in savings. By moving up to six sigma from three sigma, GE gained the opportunity to reduce its costs by US$ 4 billion. This reduction meant that shareholders would also receive an increase in their shares as well as a possible investment in the firm.

 

References

Eckes, G. (2005). Six sigma execution: How the world’s greatest companies live and breathe six sigma. New York, NY: McGraw-Hill.

Tennant, G. (2001). Six Sigma: SPC and TQM in manufacturing and services. Burlington, VT: Gower.