Monday, January 2, 2012
Week 5, a million dollar question on error.
Think about the last few weeks.... you've encountered and have been asked to consider models which assert that firm specific advantages; the arbitrage of differences; the analysis of cultural, administrative, geographic, and economic differences; and analyzing differences across cultures (among others to be encountered yet). The materials all have one thing in common - they seem to be linear; for example, if you were to create an accurate or favorable typology for CAGE, you should be able to address markets that are different than your own. Also, if you were to address and measure cultural and economic difference across cultures as a measure of distance and effort, your firm should be successful. Do you believe that? To what extent does chaos, complexity, or "error" (which you learned in statistics) play a role in varying your outcomes and plans? How would you assess that before starting the effort, and better yet, how would you determine if when it happened, and how would you fix it once the rat is out of the box.
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I have worked for an international investment bank (Goldman Sachs) and was a part of starting and selling an international business in the consumer industry(Established Brands International). While working for Goldman Sachs I spent much time on projects with associates from the London and India offices. During the starting and selling of Established Brands International I was fortunate to spend time in Hong Kong and other parts of Southern Asia. Through these experiences I have learned that business conducted in foreign countries comes with obstacles other than just language barriers, I hope to be better prepared to hurdle these obstacles after taking this class.
ReplyDeleteI would love to learn how to combine my passion for international business and cross-cultural communications along with my spirit of entreprenuership to develop a successful business venture that will create a win-win situation for both myself and my international counterparts.
ReplyDeleteI hope to gain further insight into the international business environment. This is intriguing to me, as I watch market forces change as well as political forces. it is interesting to see where business and industry land after these things settle.
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ReplyDeleteI'm just excited to learn about international business in general. Its a topic that I have always wanted to dive deeper into. I'm going to China next fall and I'm glad to be taking this prior to going there.
ReplyDeleteI hope to learn more about global competition, how companies are impacted by it today, and how companies can leverage themselves to successfully compete.
ReplyDeleteIn this same manner of thinking I have asked myself while attending class how one can really know when their business or product is ready to compete globally? It would seem that one would have to make a lot of market assumptions and take a leap of faith. Local is hard enough to predict, global seems really uncertain.
DeleteThis is an interesting topic at present, especially considering the mayhem in the European markets that is greatly impacting our own economy.
ReplyDeleteIt will be nice to learn about the strategies and concepts companies use abroad versus companies in the U.S. Are they the same, are they different? What are the similarities and which one has a more successful outcome.
ReplyDeleteI am interest to learn about the importance of international business and the difference when company is running in domestic vs global environment.
ReplyDeleteRegard,
Chun Yip
Oh yes, international business is important. If you work, you probably work with people from other countries, work in an international firm, (in many cases with this class) or work in an expat assignment or study internationally. We do some advanced basics here - and I look forward to the class. Until then (and after), I'm sure we'll be on the short leg.
ReplyDeleteI am interested to learn about how cultures and customs collide in the business world and what effects that may have on how firms do business. I am also interested in learning about what we can expect to see in the future as the world becomes more connected.
ReplyDeleteI work in an industry that seeks every opportunity to expand its reach globally. It's imperative to invest time and research to effectively implement business practices in countries with political, economic, and cultural differences. I hope this class will offer new methods and strategies to better determine value to the international customer.
ReplyDeleteFor whatever reason I picture the Ron Howard movie "Gung Ho", with Michael Keaton. I actually look forward to this class and the discussions. Learning about foreign business and culture is fantastic. I wonder how many folks in those other countries view us with that same movie impression though? In any event, I am excited about the class.
ReplyDeleteI'm excited to learn more about international business strategy because my current employer is expanding into new countries consistently. More importantly I think the one thing that is preventing the organization that I work from stepping ahead of our competitors is international growth.
ReplyDeleteI am excited to learn about international business as a whole. We are a very global market and it is crucial that we understand the global economy and how it affects our business decisions. Hopefully this class will help with this understanding and make me a more valuable asset to my organization.
ReplyDeleteI'm excited to learn more about global strategies in emerging markets. As more countries exit the "third world" and become more tech savvy, it will be interesting to see how marketing and sales strategies will differ based on the location of the world.
ReplyDeleteI have friends who owned manufacturing businesses in the US that were able to expand into the global market with great success. As trade barriers lower and developing countries become more prosperous, knowing how to analyze and develop international business relationships will become even more important in the future. This is an essential skill set.
ReplyDeleteso how do firm specific advantages, like those in ch 1,2 affect bollywood's ability to transcend borders and enter new markets/ what are their competitive advantages (kind of the same term as fsa's) that make it possible to extend the genre internationally??
ReplyDeleteI think that a company is only able to transcend borders up to a certain respect. As the article on semi globalization states, companies can expand internationally but they must have the ability to adapt to the cultures to which they expand. Even if Bollywood were to transcend internationally they would need to adapt to the new cultures while maintaing the Bollywood culture.
Deleteanother question, what location specific advantages does Nokia have in terms of their interactions with finland and it's economic and labor base? how does this help the success of the firm and how can we learn from it for our use in other firms and industries.
ReplyDeleteNokias advantage lies in its location. Finland has a highly educated population whose focus is on research and development in telecommunication. As the largest hiring company in Finland, Nokia has access to highly talented personell and is able to state their payment terms because of the limited competition. Furthermore, Finland's policies to fund the telecommunications industry and the culture of early adapters aided Nokia's growth. I am not certain how other companies would be able to benefit from these advantages, because the government would need to be a large participant within the industry, at least for a limited time.
DeleteAfter reading the article it seems that Nokia does a very good job at fostering competition. They use their competitors to make them stronger and it seems that they are kind of working together. They truly define the idea of "home base" advantage in several different ways.
DeleteMy current company has expanded into the international markets and I am looking at applying to some of those positions which have opened up. Excited about this course and its concepts!
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ReplyDeleteRather than focus on Bollywoods FSA which help its attempt to go global I want to point out some of the non-transferable FSA's such as the cost advantages they achieve in their home country. They also enjoy knowledge regarding their local market and recognition of Indian actors that are not big names internationally. I am still not sold that Bollywood has gone global, they may have experienced some minor success and a few one hit wonders but that is all in my opinion.
ReplyDeleteNokia clearly had a head start in the development of telecom. Some of the locations specific advantages would include the education levels of the local demographic. Government spending on R&D was also an element that helped Nokia jump to the front of the pack. We might consider looking at markets the education levels of markets we are considering to penetrate or even use for development and R&D. If I was planning on entering telecom Finland would be a place I would reach out to for manpower.
ReplyDeleteMNE's of India have internal strengths or core competencies which allow them to extend into other markets. These MNE's have the understanding and have mastered the technological side of expansion, the marketing aspect, and the administrative knowledge. With these strengths, and the ability to employ at such a low wage, enables Bollywood to become a dangerous competitor against Hollywood and to extend their genre internationally.
ReplyDeleteI too agree with Caleb in that Finland would be a great location for Nokias' manpower. Their change toward high-tech telecommunication with additional focus on education and competition has made them a perfect fit. The Finnish Cluster Program includes the ETLS Institute of the Finnish Economy which was implemented to strengthen competitiveness in the 90's. It pushed forward economic and industrial policies, such as those mentioned by Caleb... education, R&D, and private and public interactions to be leaders in specific content. This cluster change has refocused Finlands approach and makes them a desirable fit for Nokia.
ReplyDeleteI would have to say that the FSA for Bollywood might not be their technology, because other firms like hollywood posses the same if not better technology, but they have a larger capable workforce to produce with the current technology. With the vast work force that is at the finger tips of Bollywood the have an advantage where they can produce more at less cost than other firms. With the right content they could definitely provide a large threat to other competitors.
ReplyDeleteI agree with Caleb and bhardy about the location specific advantage that Finland provided for Nokia of a large technical population ready and willing to work. I would also ad the location specific advantage of the policies that the government up held to allow free trade in telecommunications in their borders. Many of the countries surrounding finland had government run entities that hampered competition within the country. Finland allowed competition which would have been the only way Nokia would have been able to get off the ground. What we as a nation can take away from this case is the importance of highlighting education in our country to provide a large capable workforce, and policies that will help foster competition and business growth.
ReplyDeleteI agree with Oliver that the FSA for Bollywood has a lot to do with a low cost workforce and not technology but I think technology plays a big role. In some way, a minimum amount of high technology is just the ante to get into the game in many arenas. India's business leaders are making huge gains in biotech and pharmaceuticals but without the same sort of support of their government as Finland had. These companies use their location FSA of lower overall cost to make medicines and provide medical care at a fraction of the cost of western providers. The government response is to raise taxes. By investing in the technology and the education of the workforce, Finland's government complemented the business environment of the MNE. They did this despite serious economic conditions experience in the 90's. The government saw that their natural resource intensive business base of forestry and mining was losing its economic advantage. They needed another industry that was more IP supported and therefore more sustainable. Not all countries are so supportive.
ReplyDeleteI agree with Caleb that I would not consider Bollywood having gone global already. I think that they have taken a few steps in the right direction (Slumdog Millionaire, but seem to always revert back to the traditional Bollywood films that seem to olnly appeal to an Indian audience. As discussed in class, a joint venture with Steven Spielburg or Ron Howard would be beneficial for the Bollywood industry. In order for them to reach this point however, its going to take some effective negotiations and convincing for Bollywood to step out of the traditional way of doing things.
ReplyDeleteWe really agree with Caleb on his points on focusing on the non-trasferables that Bollywood has by staying in their home country. They have a huge cost advantage over Hollywood. They have Indian actors that are not recognized internationally, but that are famous in their industry. These kinds of actors will cost less to put in films because they are not recognized internationally like many Hollywood stars, and the Hollywood actors cost a lot. Production is also a lot cheaper; it allows them to have the capability to earn higher margins when the movies have higher sales. We do disagree with one of Caleb points though; we do think Bollywood films have the potential to have some success in Hollywood. They would need to get actors that we recognize, shorten the film, and most importantly have a focus that Americans can relate to. Musicals have been widely successful in the US for years, if Bollywood can duplicate the formula those musicals have been able to produce time and time again we think they have a shot in Hollywood.
ReplyDeleteThis post was written by Michaelyn and Diana.
Adding more to Mikey's comments, while Bollywood can be large, I don't think we are ready for it. As a general thought, we like our romance films, comedys and thrillers. We like musicals and broadway, but I don't think we can compare Bollywood to that. Simply from the short film clips, it seemed that Bollywood wants to encompass a lot instead of focusing on a story with a start, middle and end. There is a lot that would need to be "tweeked" before a Bollywood film would make it big.
ReplyDeleteYou may not think we are ready for Bollywood to come into the U.S., but it's already here. The other day I was looking at my instant queue for Netflix and was scrolling down. As I got to the Romance section, I noticed the last fim on the right had a very extravagant cover to it. It was a Bollywood film. looking at the reviews of 3.5/5 for 47,000 users it became apparent, some people love this stuff and others despise it. With the low cost of production and ability to put films like these over the internet, distribution costs go down, and the filmmakers are no longer worried about piracy. I don't think Bollywood is the nest "hit" for the United States, but it will make money.
DeleteI will be interested to watch over the coming months and years what Bollywood does to refine its product to make it more interesting for the general US population. That being said, I don't believe that bigger is always better in business. Bollywood will need to look closely at their margins and ensure that they are not sacrificing profitability in an attempt for wider distribution (Global). The "sweet spot" for Bollywood may be to do what they have done thus far. India is projected to make significant gains over the coming decades. Maybe staying at home and maximizing their home base advantages will enable Bollywood to maximize profit.
DeleteThere has been an influx of musicals and television shows such as Glee in the United States. However, I agree with Diana that these musicals do not compare to Bollywood. The simple reasoning behind this is culture. Bollywood movies appeal to the eastern cultures, not only because of their romance themes and musical numbers but because of the family dynamic. For this reason, I do not believe that Bollywood can integrate into the United States without alienating its current following and losing its culture.
DeleteI am posting to this blog a little late, but I am now posting with respect to what I expect to get out of the class. By taking this class I expect to gain knowledge of what factors an organization must consider when working in a global enviornment. I hope to learn more about what decisions management needs to consider in order to successfully compete internationally and what makes some firms more successful than others when dealing with international markets.
ReplyDeleteWith regard to the FSA that Bollywood has, I would argue that one of its biggest advantages is the workforce that is able to produce a large number of films in a given year. No other film industry has the same amount of access to the labor force that Bollywood does. This allows a large number of Bollywood films to be produce at a lower cost (Which is what others have commented about). Bollywood producers could utilize this advantage to possibly team up with other film producing communities to outsource some off the movie making processes. An example of this might be outsourcing the post production editing. I think developing these partnerships and understanding the film tastes of other parts of the world would be the best strategy towards adapting Bollywood movies to have a much broader appeal.
ReplyDeleteReading through the Nokia case I believe some of the location advantages that Nokia had were: (1) public R&D spending and a willingness of the government to make venture capital for companies, (2) a telephone network that was never monopolized by the state which lead to Nokia's ability to step in and meet the demand, and (3) the Nordic Mobile Telephone network (NMT) that was launched in 1981 which at the time was the world's largest single mobile market which allowed Nokia to establish a large user base which other mobile phone providers did not have access to in other parts of the world.
ReplyDeleteWith regards to Nokia and the location specific advantages the company received in Finland, I agree with the comments made previously. Few companies have ever received such support from both the government and the general population. During the years of rapid growth in mobile technology, the Finnish government’s refocus of its economy toward technological innovation was key to industry advancement. It was impressive to read about the emphasis on research and development, fostering of an environment for competition, and the promoting a skilled labor force through educational opportunities. I definitely think all of these were tremendous advantages that factored into Nokia’s early success.
ReplyDeletePlaying the devil's advocate role, I wonder if there were any disadvantages for Nokia being located in Finland. My thought is simply stemming from basic human nature where you sometimes don't try as hard when things are given to you. It is possible that Nokia was overly dependent on Finland's "gifts" which could have made them some what apathetic. Given the numerous advantages at Nokia's disposal it is kind of surprising that they didn't have a larger market share than they did. I believe that as a whole Finland was a major advantage and catalyst for Nokia's success but I have to wonder if those advantages made Nokia a little lazy...?
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ReplyDeletein response to the question about Bollywood and Verbeke's chapters, the reading states that a core competence should be difficult for competitors to imitate. at this point in time of movie making i think there is parity among the big film makers of the world. technology is important, but you don't need it to make a good movie. there are plenty of crappy movies with a lot of explosions. where Bollywood is unique is in their stories and presentation. in their current state the movies may not be openly accepted elsewhere just as Coke is not accepted well in China for cultural reasons. but certain tweaking of their product, while maintaining the main elements that make the films unique, should enable Bollywood to transcend borders.
ReplyDeleteAs mentioned briefly by a few others, Finland's economic policy changes in the 1990's helped to foster an environment that suited Nokia well. Particularly the policies stimulated a demand for skilled employees in key areas and also pushed more people to higher education. additionally, Finland became a member of the EU which opened many doors.
ReplyDeleteOther firms and industries should look to countries that are developing policies favorable to future growth in the desired areas. countries that are candidates for EU membership or are part of the European Economic Area may be a good fit as they begin to comply with the requirements to be a part of the single market and relax certain restrictions that may have hindered growth in the past.
i doubt i am the only one thinking this, but it would really be helpful if the comments were organized under the appropriate topics as opposed to one blog post with commentary jumping all around.
ReplyDeleteI agree with you. I think that it would be particularly helpful to have specific topics and threads per each topic. I have had the hardest time locating the discussion on specific articles. The only way that I have found to respond to such articles and keep them within a section, such as Bollywood is by replying to another individuals post.
DeleteThe Nokia article was particularly interesting to read. I believe it's home-grown success was due in most part to the high level of education with an emphasis on information technology provided within Finland. I'm sure this in turn augmented the government's support of R&D within int he country, which also complemented Nokia's growth and success. Perhaps the United States government could take Nokia's success story and apply it by assisting firms finance R&D.
ReplyDeleteI also agreed that the Nokia success plays a heavy role on government’s support of R&D. Another reason I believe of their success is the percentage of graduate students back in 1958 with nearly 13% of the population. This definitely creates a huge pool of resource in highly skilled people. Also, the introduction of the NMT network that allows a mobile phone to cross multiple countries expanded the mobile industry. With the people they had and the leading mobile phone network, Nokia was able to ride along and became one of the successful mobile companies. My experience in mobile phone is when I was at 15 and I often travel to California for vacation. Unfortunately, when bringing your mobile phone across the boarder there is a huge roaming cost. But when the GSM network introduced, it allows mobile phone to be used on all 48 U.S states and I thought it was the greatest technology ever invented. I spread the words around and made all my family and friends to change to GSM phones and the month they gave me free accessories because I brought them lots of business. That’s why I believe that the NMT network in the Nordic region was rapidly adopted by other countries and Nokia seek this opportunity to strengthen their position in the market.
DeleteBollywood has the ability to transcend into other countries through their competitive advantage of producing low cost movies with the manpower that they have. However, to successfully attract to other countries' cultures and perspectives, Bollywood would need to change up their story themes to adapt to each country's needs.
ReplyDeleteI agree that Bollywood's competitive advantage lies in their ability to produce low cost movies . They could easily attract film producers to their country due to low cost manpower and production capabilities. However, if Bollywood were to change their story themes to each country's needs they would lose the essence of Bollywood and possibly alienate their current following. Furthermore, each country would need to be receptive towards movies from Bollywood. If the country perceives a threat to its movie industry they may put in policies to restrict outside firms.
DeleteWhat I would expect to get from this class.
ReplyDeleteI’d like to gain knowledge regarding how to expand a concept into different countries and cultures regarding values, their approach to life and what is wright and/or wrong. It would be interesting to study what a company needs to do to be successful outside of their “comfort zone”.
Too often companies think they can expand internationally by simply copying their business model, providing some translations, and make a few changes here and there and that’s it. Unfortunately, a lot of multinational organizations have made this mistake and concluded it wasn’t successful to expand because of lack of brand recognition, different cost structures, as well as cultural differences and laws.
A perfect example is when McDonalds expanded into Germany. When promoting the McDonalds hamburger in Germany, the Germans thought a hamburger was someone from Hamburg.
This is probably too late to start responding to this blog. With the Global environment of the firm class, I expect to learn more about how to analyze a firm’s SWOT in an international setting. With that, I hope to learn what a firm needs to consider when they want to go international, outsource or expand their market.
ReplyDeleteDr. Peterson,
ReplyDeleteThanks for putting us on to Al Jezeera. What a fantastic store for international news! I highly recommend everyone checking it out or even stream the live feed at work during the day.
Here's a sample. Check it out!
http://www.aljazeera.com/programmes/insidestoryamericas/2012/01/201211171414173881.html
Thanks
Stan
You're welcome. I spent some time living in Paris. Al Jazeera English was one of my main news sources because it was so widely around. My French wasn't that good at the time (nor at this time, I'm afraid..) so the English language channels were on in my apartment.
DeleteI've been thinking about it and I'm pretty sure that Bollywood is currently not a global entity and but has the potential to become that. In the same way that Hollywood is an entity that has multiple directors that produce many different types of movies Bollywood can become that as well. They will become global as soon as more directors come out of India with a different mindset of making different kinds of movies such as action, comedy, or drama type movies. We seem to be set that Bollywood can only make one kind of movie just because that has been the trend. They can become global as soon as they diversify their movie genres.
ReplyDeleteThere are multiple genres, I think, trouble is just like we don't get world news in a complete coverage here, we also don't really get an exposure to this industrial portfolio of studios and their products. It's a natural thing, I suppose. Bollywood hasn't made a terrific effort to get things out broadly either. They do look like they've got their own Melrose Place thing going in http://www.bollywoodworld.com/ Look to the bottom of the page for trailers and I think you'll see a broad spectrum. How about the remaking of the movie "Ghost"?
DeleteThe Rise of Scandinavian Crime Fiction
ReplyDelete"We thought there was this Scandinavian ideal and that everything was hunky dory. But now we realize they have just as many problems as we do."
An interesting comparison case to both Bollywood and Nokia is the incredible success of Nordic crime fiction over the past 10 years. I just heard a radio interview on Monocle24 about Author Barry Forshaw's new book, Death in a Cold Climate: A Guide to Scandinavian Crime Fiction.
Nordic Crime fiction started back in the 1960s with a husband and wife pair Sjowall & Wahloo. Their books were very political, i.e. marxist, which didn't go over very well with an international audience at the time. Stieg Larson's, of the Girl with the Dragon Tattoo & Millenium Series fame, built on the influence of the couple's political police fiction.
Unlike Sjowall & Wahloo, Larson has gained a voracious international audience in part because his books both promote and expose the successes and failures of Scandinavian Socialism.
Examining the results of society, be it Capitalism, Socialism, or Communism, has become a popular activity in the new millenium. This genre has cut through the all CAGE distance to strike a relevant chord with readers all over the world.
Interestingly, Forshaw mentions that several American and British authors have tried to capitalize the success of this genre by starting to set their books in Scandinavia. This reminds me of Bollywod films using New York as a backdrop. I doubt they will be as successful.
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That's really, really interesting. Being of Norwegian background, I can see the need to find something to read or write for the long winter. Then again, I get off the point... I get what you're saying - the CAGE network does strike a chord in business looking for opportunities at a close distance or at least a comfortable distance in the four dimensions simultaneously. When those distances are at least comfy for one firm, we have to wonder whether it's comfortable for more than one. This is called the isomorphism phenomenon - firms vicariously seeing some fit in close competitors or others in another industrial set; it makes the firm ponder strategic (and sometimes international) motions in the direction similar to others. You're right, the Scandinavian lit probably won't have the reach of Mombai, but with the isomorphic model, they'll do OK.
DeleteI have read the Larsen series and as a fan of the mystery/thriller genre, I found they fit my needs as a reader. I think that when a product is "good", it will find a home in another country if it strikes a cord with their residents. For other examples of entertainment, I am thinking Japanese Magna or Anime. They don't particularly work for me but they have devoted fans all over the world. Reach will always be relative and some genres will do better than others. Cultural barriers will always exist but many times they can be surmounted with a good product that meets the consumers needs.
DeleteI know I already mentioned this in class but I thought it was worth mentioning again since there was some agreement and disagreement with my comments regarding Bollywood. I am also aware that we are probably ready to move off of Bollywood but after reviewing Ghemawat's CAGE analysis I think that C (culture) is the biggest distance and that if Bollywood really wants to be successful globally they need to create a formula that mitigates some but not all of the culture. This at least would be a starting point...
ReplyDeleteNot necessary true that culture is the biggest barrier for Bollywood to become successful globally. I believe that is ought to be a selling point for movies that produces by different country and that particular selling point can be so called Culture. For example, most of Chinese movies that made it globally and successfully are movies that comprise of martial arts. Not saying that there aren’t movies other than martial art that made it globally but just wasn’t as successful. Imagine that Chinese movie without martial arts, then what is the selling point of the movie? I would be there aren’t many of us would watch it. Bollywood can focus on low cost in labor and differentiation as their culture. Yet, Bollywood can maintain their culture into their movies but could alter just a bit to suit more population.
DeleteRegards,
Chun Yip
Good point Chun and I agree that martial arts are a good selling point for eastern movies but I also think that years ago martial arts became very cool and very well regarded (maybe with a little help from Bruce Lee and Chuck Norris). That being said the cool factor or martial arts is leveragable where as there is not really anything that is considered cool about Bollywood films yet. Maybe one day people will consider the singing and dancing as cool as martial arts is but I dont see that happening soon. I really agree with you that they might need to alter their films a bit to make them more attractive to the broader audience.
DeleteI would have to agree with Caleb on this one Chun. He makes a valid point about martial arts and it's attractiveness to everyone compared to how lame and cheesey Bollywood is. I believe that (C)culture is the deciding factor after reading about the CAGE analysis. Culture is an output and so many things go into. That barrier is just way to hard to penetrate when making movies. Some things like martial arts achieve this but Bollywood has got a long was to go.
DeleteI also wanted to comment on Ghemawat's Semiglobalization and Strategy paper because it got me thinking about the definition of "Global". When the class first started I would have defined any company that provides a product or service to many countries throughout the globe to be global. But after reading and having discussion I think that being truly global might be defined as providing a uniform product or service to many regions. In that case I cannot think of a single global company. Nike was used as a possibility but I used to own a footwear business and visited many Nike factories and they ship product using different lasts and tooling to different regions of the globe. You would never ship a shoes built from a Japanese last to America or Europe since an American or European last is much more narrow and long. Color is also another huge variation. But I do agree Nike is probably the closest. The world it not flat in any way....
ReplyDeleteCaleb I can maybe think of one or two. I am not sure if you would consider them companies but they are definitely organizations that take in big dollars and produce a product. The Catholic and LDS church are very global organizations that try and provide a very uniformed product no matter what country they are in. Another organization that might fit this as well would be the Red Cross. Although they are non profit organizations they do provide a product and a living wage for thousands of employees.
Deletegreat examples Oliver and I agree that religion is probably the best example of a uniform product.
DeleteGoing into Session 3 at the end of January: Between sessions two and three, you'll be reading and comparing Ghemawat 2 and 3 and creating a tie to Verbeke. Start here - http://cage.ghemawat.com/ . This is a free software site for comparing countries on the CAGE format. The issue with CAGE is the measurement (multivariate) of CAGE differences, and not just cultural distances which is some thing you might see in other international classes...... The multivariate analysis shows these distances and the task then is how to take advantage of differences, to Ghemawat it's arbitrage... What is the advantage to you of the arbitrage concept and how do firm advantages and perceptions fit into their ability to adapt and advantage the situation.. This is really a grand question and at the top of the game would cover all the Ghemawat, Porter, and Verbeke materials assigned. Don't feel like you have to rush to intake and coordinate all those materials yet, but just comment on your understanding so far on any part of CAGE, distance, arbitrage, or FSA.
ReplyDeleteI like Ghemawat's outlook as it recognizes the various aspects of doing business in different parts of the world. It is a framework that takes in more than just logistics, cultural or administrative differences and attempts to tie them together. It also makes the point that a country is not a unilateral market but one with challenges within its own border. For example - Highway Deicing salt - logistics plays an important factor on where we market. My company is strong in the midwest where we have mine sites but weak in the west where we don't. We can rail salt to Washington state but Peru can import via water cheaper. This is a product with low cultural barriers, the regulatory environment does not impede import into the US so proximity and transportation lanes are the primary barrier.
DeleteFor a foreign country to participate in the US salt market, it helps to have a ( or a group) of local production sites. This is what K+S did when they purchased Morton Salt. Most people think of morton as a US company but it is owned by a German Conglomerate. By buying an name as well as the production sites, this erased many of the challenges tied up in cultural perception of starting new in the US with a new brand.
Did you see that the Euro fell to a low of 1.26 from a high of about 1.45 with an about 20% hit this weekend due to S&P downgrading of 9 Eurozone countries' credit. What does that do for the fir that's been hoarding cash and now has the opportunity to buy into a market where that are advantages to leverage?
ReplyDeleteWell, if I was a firm that had been hoarding cash, and I was an importer, I would be jumping for joy seeing as now I can buy goods for less than I would have before. This also means that I could buy stock in other companies, raw materials, manufactured goods, etc. for less. My cash dollars will go farther. Great opportunity for importers to get into markets that were previously more expensive to join.
DeleteOn the other hand, if I was an exporter to European markets, I would be very frustrated knowing that it will now be more expensive for my clients to pay for the goods I am trying to send to them.
When Euro fell to a the 10 years low, most of the bank will rapid decrease interest rate to encourage lending which usually increases the government bond rates. An interesting article I’ve read < http://www.guardian.co.uk/business/feedarticle/10015845> show that Italian 10-year government bond yields are above 7%. If I am firm that has been hoarding cash I might consider buy-in government bond because 7%+ yields is quite high comparing to US 10-year government bond at 1.834% < http://www.bloomberg.com/markets/rates-bonds/government-bonds/us/>. Sure that there are other great opportunity on utilizing the cash, but I prefer a safer route.
DeleteRegards,
Chun Yip
Whenever a company, market, or country for this matter is going down dramatically in value it is the general perception of people to freak out and take money out. People like Warren Buffett see this only as an opportunity to buy more and hedge those losses. People like him love to jump on these opportunities.
DeleteIn the case of a firm that has been hoarding money, what better chance than right now to make some serious cash than take advantage of this situation.
Cargill just completed the acquisition of Provimi in Europe. Provimi is the world leader in animal nutrition and the 2.1 billion acquisition, coupled with existing US business makes Cargill the largest animal nutrition company in the world. Cargill purchased the company because it fit with the company strategy. " To be the world leader in nourishing people".
DeleteI don't know if the recent devaluation of the european currency had an impact in the decision. As a company that trades in commodities and currency, I am sure they had some hedging in position, in tandem with the transaction.
I can't see Cargill making an acquisition in Europe that was not within the core competencies, regardless of the advantages of a lower Euro. Maybe there will be additional purchases in the future.
If I was a company that was hording cash, I would now take all of my executives on a trip to Europe as it is now cheaper to go on vacation there.
DeleteOn a more serious note, this large decline in value of the it now makes it more affordable to invest in companies in Europe. I agree with Steven that the recent devaluation of the Euro would be the sole decision to acquire a company in Europe. However, this devaluation raises concerns about long term investments in Europe. With these governments highly levered, changes in legislation and taxation are very likely to occur in the near future, which makes long term investments into Europe more risky. Therefore there maybe better investments to find now in Europe, but the changing business environment adds uncertainty to the equation.
The easy answer to the question would be, the temporary decline of the Euro makes it more interesting for American companies to invest/ spend their money in one of the nine Eurozone countries. It has been speculated by many that Greece and Italy will most likely not be a part of the Eurozone in the future.
DeleteIn whatever case, you cannot talk about Europe as whole. Europe consists of 50 countries. The EU has 27 member countries with 23 different languages, and the Eurozone consists of only nine countries.
The declining of the Euro doesn’t mean it’s interesting to invest your US$ in Europe or on the EU. I would invest my US$ in Turkey, a country that connects the Western world with the Middle East and had an approximate nine percent growth in the last 18 months.
For awhile I worked with a non profit organization that focused on developing businesses in poor latin american countries. They did this through a process of conducting business schools that led up to business plan development and eventually financing through micro loans. While working in this organization I could see how they both used some attributes of CAGE to help push forward their organization and how if implemented other it would greatly help. They did an amazing job at making sure they hired on a full time in country staff that could easily relate to the cultures of the particular country. They focused in very specific geographic areas where there was potential for growth in small businesses and where financial funding was available. Although they are not a for profit organization the same principles apply to this organization for accomplishing their goals internationally.
ReplyDeleteSHIMANO
ReplyDeleteI just got finished reading the Shimano case, and thought it was interesting how Shimano was able to recognize the industry trends and adjust its business model in order to gain profit share. I especially think that its model to first, specialize in the area it can be the best i.e. components, and two, bundling components together have both helped Shimano to move from semi-globalizaion towards globalization. Shimano is able to limit the amount of customization on components because the bicycle industry has become trained to design around the components themselves.
Just a few thoughts to help get people started discussing.
I think Shimano has also done a good job in allowing the customers a way to differentiate between their own product lines when making a buying decision. Customers can look a component packages and decide between Diore, DX LX and XT and decide how much they want to pay for their components. The customer makes a choice but most likely it is a choice between one Shimano product over another
DeleteI agree with earlier comments that Shimano's strategy gave the company an advantage over its competitors. However, with this competitive advantage, I really like the company's strategy to re-invest profits back into the company through R&D. The case states the company had 1,350 (one quarter) of all of its employees working in R&D. This strategy allowed the company to have long term success and keep a step ahead of the competition. From other cases I have read, it is relatively easy for a company to design a breakthrough product, however it is much much harder to continually design a series of breakthrough/innovative products over a long period of time. I believe Shimano's heavy investment into R&D was a major factor in the companies long term success and market dominance.
DeleteI thought it was interesting the company offered so many variations as they continued to develop new product lines, they continued to produce current lines. R & D is certainly a significant factor in the firm staying competitive and that is a real advantage for them. I personally thought that the firm remained successful through the continuation and production of previous lines. Clients of all types, social & economic etc, high end product, middle end and lower end could pick and choose components, upgrade, cross-over and really customize their personal need to what was out there. A fairly decent bike used to commute will run you $800 to well above the $1,000 mark. You can buy and piece together or you can buy pre-built, but either way, there is this sense of trust in the brand and if what's there isn't working, you can switch it up and know you are getting a quality product.
DeleteA question that did come up was if they should diversify into frames and other components: Personally, I think they should not. I think they have done a fantastic job in exploiting their core business to the point that it is really what they are known for. They should stick with it. I think if they produced a product that appeared to be sub-par from their standards, it would back-fire and actually cost them a sense of trust among their client base. (No real information to back up that thought, but I think that clients tend to return to companies and products that they trust. When a client feels cheated of that, it is very difficult to regain it). Just my own opinion here on this.
Wiest I totally agree with you and your interest in Shimano's strategy. I think it is fascinating that no other company has been able to duplicate their packaging system of components. They are the dominating brand in any component on bicycles. I know that a couple of manufactures have made some in roads on them recently; however, they are seen as the best and only component on a good bike. They did a great job at leveraging their FSA to launch them into a semi global market.
ReplyDeleteI found it interesting that though Shimano's intent was to eliminate arbitrage - the whole bicycle industry is one big example of it. All the major players work together and benefit and profit because of the others.
DeleteI think there are so many semiglobal industries out there who are customizing their products too much based on a few assumptions regarding taste and culture. I agree with Wiest in that it is most effective for a company to work to standardize around company strengths (components, etc) instead of working around something new causing the compnay to start from square one.
ReplyDeleteTalking about semiglobal industry, the professor from another class (apologize for not remember his name) on our last session gave an intuitive example of globalization vs. localization. For globalization companies they need to standardize their products which in return of low costs. For localization companies their products can be base on customization but will be costly. That means semiglobal industry will be somewhere in between the two. An industry that I think it is semiglobal is probably insurance industry. They are global since I’ve seen some insurance companies across countries. They are localized because they need to customize their package based on laws and regulations on that particular country. I do think it is very difficult to become a semiglobal company because the company might have to cover both flavors and can’t concentrate on either side. They must balance exactly at the middle of the two.
DeleteSHIMANO
DeleteShimano is a great company, and is making the best and cheapest components in the world. It accounts for 95 percent of the global net sales of bicycle components.
The most important section for me in the article was included “…. home produced components were often pricier than Shimano’s components, over 90 percent of bicycles manufactures produced no parts themselves beyond the frame”.
The company’s strategy to re-invest the profits into research and development is crucial for the company’s global success.
They are making the best components less expensive, so that every bicycle manufacture loses money if they would make their own components.
One thing I would like to comment on regarding one of the readings that I found to be very insightful. CAGE analysis was a very simple means of understanding where to begin if a company were to expland globally. Before I read that I had always wondered where to begin in the complex maze of the global business. I just started a small speaking company and I decided to apply these principles just to take a crack at CAGE analysis. I'm not planning on going global, but it was interesting seeing how easy that initial analysis is and how much information it provides.
ReplyDeleteI think that Stuart is correct when stating that CAGE analysis is a great place to start when expanding an organization. When we start a company we have a vision and a mission. CAGE analysis takes it to the next step.
DeleteI gained a lot from Ghemawat's discussion of arbitrage. I knew that firms exploited differences between countries, but have never seen the idea outlined in such a fashion that can be used as part of a corporate strategy create value.
ReplyDeleteIt is interesting when applying this to the Shimano case that Shimano did not look to use arbitrage in its pricing strategy. They had unified global prices. It seems that they could have easily exploited the low cost production by charging higher prices to wealthier markets. However, the case describes that they had global prices in place to eliminate gray market issues and reduce antitrust potential. I wonder how big of a risk those things really are when compared to the arbitrage benefits?
I also gained alot from Ghemawat's discussion of arbrtriage. ONe of Shimano's strong points is customer relations and so unifying global prices only complemented that strongpoint. They really could have easily exploited the low cost production by charging higher prices, but to create value for their global consumer base they standardized as opposed to customize.
DeleteThe cage frame work allows companies to put themselves in a position in which they can capitalize best in arbitrage. They use this tool to analyze differences between countries and really look at what matters the most within each companies own industry. As these companies evaluate the distance and the difference, the greater the distance and the value difference between these separated markets, the greater the return during arbitrage. Companies are using tools to truly adapt and take advantage of distant markets. Companies are utilizing more of a globalization approach than staying semi-global. Are they completely global in all products and services, no, but companies see the importance. The companies in foreign lands which see and understand the importance of globalization will have rapid growth and will become emerging markets.
ReplyDeleteI agree Bret that the CAGE framework greatly allows companies to properly position themselves in order to best capitalize in arbitrage. Within a given industry, a company can look across borders to find what "distances" they might have within other countries, and use it as Ghemawat says as a "basis for arbitrage." There is obviously different levels of arbitrage within each of the CAGE framework pieces.
DeleteWhile reading over the Shimano Case, it was clear that Shimano will be expanding and becoming more of a global player than it already is. Shimano is looking at overseas production, expanding with global operations. The challenge will be how accuratley can Shimano use a possible Cage Framework to maximize its profits and expansions in the other global markets it investigates. With Shimano using a one price fits all approach in all of its markets to eliminate any gray markets and arbitrage, will Shimano shifts its global approach to maintain marketshare. It seems Shimano looks at arbitrage in a negative scope while other companies view it as opportunistic. I have the same question KRIS had, in that how big are the antitrust potential and and gray market issues? Are these issues big enough to create lost opportunity with Shimano. Sounds like it!
ReplyDeleteI agree that Shimano looks at arbitrage in a negative way instead of opportunity. That's interesting to me because it seems that one of their core competencies or strengths is their ability to tap into a wide variety of markets. It seems that they are missing out on some great opportunities. Maybe the antitrust and gray markets are really big and that's why Shimano stays away. I don't know. But I do agree that it's a missed opportunity.
DeleteThe Shimano Case was a very interesting read. Shimano definitely plays the pricing card when dealing with new competitors. SRAM seemed to able to produce products that would be able to out-compete Shimano in some instances and they ended up getting nailed with a predator pricing lawsuit. From an arbitrage approach, Shimano goes with bullying out competition with pricing, which I found surprising. The company is known as a leading innovator, and I would expect new product lines-- not a pricing skydive.
ReplyDeleteBlair, I agree the case was pretty interesting. Also, I agree that Shimano was creative in their pricing strategy, but I do applaud them in how they found multiple ways to attack their competition. They were aggressive in pricing and pricing maneuvers which added to their aggressive R&D Approach.
DeleteThis comment has been removed by the author.
DeleteHard to assign credit to the writer posting as "Canada". Stan, is that you?
DeleteSemi-globalization and strategy
ReplyDeleteI’ve thought for some time that Coca-Cola was a great example of a truly global company. The story of the company though as told by Ghemawat was very interesting and clarifying to me. Coca-cola’s swaying back and forth between being highly centralized to being extremely localized and then landing somewhere in the middle gave me a much different picture than I thought existed. Ghemawat’s argument that the world is not flat and that a company planning to expand internationally has to consider differences they may require changing the plan to a local flavor in order to be successful.
The hotel company that I work for is expanding rapidly. They decentralized into four corporate headquarters so that decisions could be made quicker in each part of the world and each unit has the ability to mold the business to fit the locality of the opportunities.
My business is gift cards and incentive awards. There is pressure for us to expand globally too for our business to be in concert with all the hotel growth. Gift giving in the US and the UK are quite similar and we are already in the UK – but we are finding it is very different in China. We will definitely have to have a local approach there.
Comparing markets
ReplyDeleteGhemawat’s CAGE article overall is very enlightening. From country comparisons to industry comparisons there are so many way to break down information to help you make better decisions in regards to international growth. I found the Yum! Brands story particularly interesting. It illustrated the importance of including all the CAGE aspects into your analysis. In this case distance and NAFTA put Mexico near the top of the list even thought the wages were seemingly too low for success.
This framework could be useful for my business. Our choices for expansion include Canada, Mexico, China, India, and the European nations. We are sort of struggling as how to proceed.
I really liked Ghemawat's discussion of CAGE, as well. The CAGE analysis can be tailored for use by divisions within a company, as well as the company as a whole. Our company uses this kind of analysis within each department to better determine how to approach a new international market once the decision has been made corporately to expand. It's a tool that could be used in various capacities regardless of the size of scope of the business.
DeleteAdministrative difference - India
ReplyDeleteIn the January 11 New York Times in a story by Vikas Bajaj a description of government controls on FDI was highlighted. Interestingly Walmart faces the same type of challenge in India that they have faced in small town USA. India's government reversed a decission to allow 51 percent foreign ownership in multi-brand retailing. At the same time they made two other decissions - one to allow single brand ownership like Gap and Ikea as long as they buy 30% of their goods from local small businesses - two to allow direct foreign investment trading on the Indian stock market without having to go through intermediaries. These changes seem to decrease some of the administrative distance that the Indian government has in place in order to help their sagging econonmy by allowing increased FDI.
Arbitrage
ReplyDeleteThe lower cost of software development outside of the US is something I've experienced in my work. A contract services group that handles our company's enormous list of ongoing projects utilizes developers from the Phillipines to do much of the work that we have ongoing.
In Ghemawat's article it was enlightening to learn that more than just low skill labor arbitrage is happening all over the world and that utilizing the CAGE framework to find arbitrage opportunities.
In looking at arbitrage from a cultural perspective it was easy to see how Bollywood has benefitted from arbitrage because its ability to sell movies with the home country appeal to diaspora.
The ability to find opportunity through differences that exist makes sense. But the challenge of keeping that opportunity as a competitive advantage may be challenging since everyone likes a great idea and would be looking to replicate what has been done. One example that Ghemawat pointed out of this is how IBM has gone into India and hired thousands of IT workers at the lower cost in order to compete.
I also thought it was interesting that there is more than one type of arbitrage.
DeleteThe takeaway that I got from the case was that arbitrage must be looked at on a whole picture rather than just one particular cost element. Globalizing in order to cut costs in one area may not necessarily be beneficial for your company. Rather, all elements of costs should be considered including labor, capital, culture, politics, etc.
Tina Vuu
We agree with this. Organizations need to be looked at as a whole. While one option might cost more if it isn't outsourced, you need to look at how it effects the culture and the politics of that organization. Simply cutting the cost of something without looking at the ramification which can be caused later isn't good. It is a simplt step which shouldn't be ignored.
DeleteMikey & Diana
In reading the Shimano case, I find that the company was brilliant in its way to achieving competitive advantage. Shimano not only strove on the current trends including the different speed gears, shifting system, and mountain bikes but they also made it better - thus attracting popularity among bike riders. They were also the first to bundle the different bicycle components that defined the bicycle's performance. Not only did this allow Shimano to prove that its parts were the best, but also drove out competition being that the manufacturers had to use all the products in the bundle, rather than shopping around for other competitor's parts.
ReplyDeleteWhile Shimano has done well in the bicycle industry, they must look further and find ways to leverage themselves Campy and SRAM. This would include bettering their lead times, technology, R&D, and customer relationships.
Tina Vuu
Shimano has established their place in the market! It doesn't get better than a positive reputation.
DeleteAfter performing a Strategic Analysis focusing on the Environment Analysis. It is clear that Shimano has positioned itself well given the following environment in a general sense along with an industry sense.
DeletePolitical situation, the political situation had little impact on the environment.
Economic situation, High gasoline prices in the 1980’s increase bike sales.
Social aspects In the 1990s a surge in mountain bike sales almost displaced road bike sales. In the 2000s, Lance Armstrong’s tour de France victories helped revive the public interest in the road bike industry.
Technological aspects, Technology improvements in the 1970s spurred the “bike boom”
Industry Environment.
The threat of new entrants, Bike industry is flat and requires global production efficiencies to be competitive. The threat of new entrants is low.
Bargaining power of suppliers, Suppliers have little leverage because of common raw materials non-specific to the industry.
Possible substitutes, Motorized gas and electric vehicles pose a threat as a possible substitute.
The bargaining power of buyers, Buyers consist on mainly TREK, Cannondale, Specialized, and Giant. Shimano controls 90 percent of the drive train for Specialized, Other supplies also have little leverage against Shimano.
Rivalry amongst competing firms. SRAM has won two lawsuits against Shimano and continues to be a major threat.
Stakeholder Analysis,
Campy, 72 year old Italian company. Specialized in high-end components for racing bicycles. Sales of $106 million. Slower growth and a lack of innovation.
SRAM, In 2001, sales of $120 million, one-tenth that of Shimano. SRAM won a major antitrust lawsuit that propelled sales in 1996. 2005, SRAM released the first road bike component group, putting it into the high-end road market. Long lead times kept SRAM from taking additional market share from Shimano, however, “if SRAM can come in with shorter lead times and maintain current levels of customer support, many bike manufactures will drop Shimano in favor of SRAM.
Shimano is the most well known parts companies, I have a few friends at work who have paid for than $6,000 for a high end bike and it has been outfitted with Shimano parts. They have sales higher than any of there competitors, but they need to make sure that they continue to be innovative. Shimano is obviously threatened by SRAM, they have been taken to court twice trying to keep SRAM from gaining market share. Shimano needs to focus on the development and try and remember how they became as successful as they have.
DeleteI think its safe to say that it wasn't mere luck that Shimano noticed the potential of the mountain bike market much earlier than others. I couldn't agree more that they need to continue to drive innovation ad utilize that as a competive advantage against their competitors. In addition to innovation they need to continue to do what they do best. They need to maintain low costs and look leverage their brand value. They have been around for long enough and have been leading the pack that they need to continue to market themselves and innovate at the same time.
DeleteShimano adopted a key concept of making sure that components work in harmony one with the other as to make the entire bike riding experience complete or harmonious. SRAM and other new comers may have specific components that shine, however, as with most machines all elements need to work together to create the desired outcome. Shimano has decades of experience in creating products that work together correctly. I think that this knowledge will allow them to keep the like of SRAM in 2nd place.
DeleteIt seems that alot of these companies ( Nokia, and Shimano) seem to be in the right place at the right time. They were involved in niche technology that became relevant at the right time. With Nokia, they just happened to be involved with technology that was originally relevant to the national security interests of Finland. There are companies and researchers in the US that get those funds as well in the forms of grants and other research funds.I don't necesarily believe that the Finnish government was so altruistic. Shimano on the other hand saw the rise of prominence of bicylcles and they used best practices and raised their business to prominence. theirs was one of luck and being shrewd in business. I think international firms have a hard time gauging where their products are going, there is no weather vane to truly know what the market will do.
ReplyDeleteI agree with Nathan that in both cases there was a tremendous amount of luck. But for Shimano they made some very smart moves in shifting different ingredients of their model. For instance their pricing model changed to best exploit their position. When they were not facing much pressure from competition they kept their pricing high and offered zero discounts but once SRAM wedged their way in they slashed prices.
ReplyDeleteWe also agree with Nate and Caleb. Shimano seemed to know what they needed to focus on and when to do it. Innovation and keeping up with technological changes kept them at the top. Certain parts were produced for certrain regions. For example, when mountain biking became popular in California, they knew they need to produce gears that were 15 speed and later 21 speed. They came in at a good cost with a quality product.
DeleteClearly they were doing something correct from day one and from the "home-base". Being in such a competative industry didn't stop them, but only pushed them into a strong future. One of these items whicht they did correctly was customer relations -- after all they were producing products for cunsumers.
- Mikey, Brandon & Diana
I also agree with Diana, Nate, and Caleb that luck is a factor in the success of many companies, however, my knowledge leads me to believe that a thorough Strategic Analysis makes or breaks a company in the long run. If the company understands the General, Industry, and Stakeholder environments and also understands what resources and capabilities they posses. They can take these resources and capabilities and use them effectively given there knowledge of the Environment to create a sustainable competitive advantage. The key is to create a link between both the external and Internal components called a strategy.
DeleteThere were definately some advantages (luck) for both Nokia and Shimano. However, Shimano really impresses me with what they were able to do with their business post World War 2. The sentiment towards Japan and Japanese products was not great folling World War 2, especially in Europe and the US. Notwithstanding these sentiments, Shimano forged ahead, built their product offerings and made the world want their product in spite of some negative sentiment. They built a brand and a reputation that bike manufacturers had to take notice of. At a time when many companies may have stayed at home they pushed forward with their product.
DeleteI agree with everyone's comments that there was definitely luck involved in Shimano's success; however, I also believe the business strategy used by Shimano in its approach to a "technical lock-down" was extremely savvy and key to what was going on in the bicycle industry at the time. Shimano "upped the ante" on technological differentiation in the industry and this was a combination of both timing and luck.
DeleteArbitrage - This word is used many times when discussing the efficient market hypothesis. For smaller groups it is very difficult the locate an arbitrage opportunity and exploit it before large firms come in and take advantage of them and drive the opportunity to parity. It is mentioned that prices will not reach US level prices for many decades which made me wonder when the paper was written (2005). I think that Ghemawat would probably like to revise this projection today since just over the last three years my company experienced more than a 25% increase in prices from our Asian factories. The efficient market hypothesis will hold true in Asia just as it does everywhere and I believe that in short time there will be little to no opportunity to arbitrage in Asia unless you are as large as Wal-mart but I think in no time they will be looking elsewhere.
ReplyDeleteArbitrage -- the simultanious purchase and selling of an asset inorder to profit from a difference in price.(Citation--http://www.bing.com/Dictionary/search?q=define+arbitrage&qpvt=arbitrage+definition&FORM=DTPDIA)
DeleteSo, is it that bad? If you know how to do it correctly, it might be a win/win situation for both sides -- buyer and seller.
-Mikey and Diana
When I was reading about arbitrage, I was thinking about outsourcing? When it comes to customer service, it isn't a good idea for someone in the the US to call and "Adam" to pick up the phone in India. We generally want to talk to someone here in the states. On the otherhand, when you outsourse to another location like manufacturing of some parts, it isn't as hard on a US customer. The parts can be made somewhere else, and then assembled in the US and it makes you more accepting of the item. I wonder what Ghemawat has to say to this...
ReplyDeleteI couldn't agree more with Diana on this one. I currenlty work in a call center environment and companies have a tendency to outsource their call centers to save a little money. I've had numerous people that they are faithful loyal customers to us because we do everything inhouse. Outsourcing has it's pros and cons, but when it comes to customer service and not manufacturing I feel strongly that it should be done inhouse.
DeleteIn addition, arbitrage makes me think about opportunities to create a competitive advantage. The article hints to this a little bit. But I would really like to know how companies can do this effectively.
Diana's comment about outsourcing prompted me to think about arbitrage in my workplace. I agree that outsourcing is a form of arbitrage and I have seen conflicting results of outsourcing. In addition, it made me think about the cultural arbitrage that I see at work. As an international corporation their are a lot of different people from all over the world working together. This can often times lead to some difficulties. However, these subtle differences can create great perspective and generate creatively abstract ideas. I have witnessed how the same objective was perceived differently by people of different cultural backgrounds and how these unique cultural attributes can lend themselves to thorough and creative problem solving. Group think seems less likely when placed in a situation where cultural arbitrage is present.
DeleteDo antitrust laws limit arbitrage within the United States? If two competitors who make the same product on different coasts get together and say, " I will sell you finished product in my region if you sell me product in yours", I can see a legal problem developing. There are probably instances where you could share a raw material supply but not a finished product. I think this may be a case in a CAGE framework where the A plays a bigger part than the others. It would make sense to do this cross border if both you and your your competition had access to a markets each could not reach without significant expenditures.I don't think the antitrust laws apply to foreign partnerships. My thought is, this is where commodity markets can provide a solution without flirting with regulatory entanglements.
ReplyDeleteAs tortuous as the Bollywood movie we watched in class was, I can't stop thinking about alternative movie markets.
ReplyDeleteOver the weekend I read an excellent article on npr.org about Fox's emerging foreign language market--I wonder if this might have been a lesson learned from Murdoch's botched venture into Chinese cable a few years back.
The article, "Fox International finds that not everyone wants to buy what hollywood is selling," highlights Fox's investment in a mexican movie critical of the U.S.'s role in the War on Drugs, titled Miss Bala. The director needed Fox's funding to finish the film and was astounded that the studio didn't interfere creatively.
Fox's representative says that emerging markets are the new film revenue frontier, and might spurn creativity at home:
"There's a new aesthetic that's coming out of people that weren't schooled in traditional Hollywood ways," he says. "There's an incestuousness creatively here where we're all reading the same publications and listening to the same music."
So what's going on? Fox doesn't even seem concerned with bridging any CAGE gaps as far as markets are concerned. Internally though, they want to plant investors in foreign markets for the money:
"Movie audiences are on the rise in the important emerging economies known as BRIC in business circles. Brazil, Russia, India, China. Here, they're dropping. ...like a brick."
Near the end of the article on Exploiting Differences, Ghemawat suggest that companies be "discreet" in discussing arbitrage and the value created by using a workforce in another country. ( page 22 middle of page) The low pay of workers and the lax environmental standards will both lead to reduced costs but there is a suggestion that transparency is not important. I disagree. Consumers should be aware that the prices they pay are the result of all inputs and their choice be a part of the equation. Today we have a choice between buying and organic apple and one sprayed with pesticides. The price we pay in the market reflects the lower yield and that one less externality is paid for in the sustainable practice. Consumers can and do make the choice to pay more.
ReplyDeleteOne example where transparency can work is in free trade coffee. My understanding is that this program is not without it's faults but the extra information on the product assures the consumer that the growers can make a living on their beans.
Corporate responsibility and managing your image is playing a much larger role that it did 20 years ago. A company can create shareholder value by being a good corporate citizen and and providing leadership in these areas instead of minimizing the negatives associated with their products manufacture.
I agree with Steven's comment in that companies should be transparent rather than discreet.
DeleteConsumers are becoming smarter and there are all sorts of research and information that could be easily accessible with the click of a mouse. We are also being pro-active in buying things such as "organic", "made in the USA", and avoiding products that are produced in sweat shops or with unfair wages.
However this would also put companies on the spot. They can't be transparent if they were using arbitrage in such a way that would turn consumers away from their product. There would need to be a way to both satisfy consumers and create an advantage in arbitration.
1/25, Wow, that's a fabulous job by everyone. Good, thoughtful posts. I think people are also reading what others are writing too. Hopefully, this is an additional value added learning experience between peers that makes some sense and keeps everyone up on reading and thinking thoughtful thoughts. I know the exposition I'm reading is very, very good.
DeleteThe distribution looks like this so far:
0 posts - 1 MBA
1 post - 3 MBAs
2 posts - 3 MBAs
3 posts - 5 MBAs
4 posts - 5 MBAs
5 posts - 3 MBAs
6 posts - 2 MBAs
7 posts - 2 MBAs
8+ posts - 4 MBAs
TOTAL..... 28 MBAs
Total number in the class: 28 (just making sure I got everyone)
Looking at the essence of the CAGE framework it is really a valuable tool for companies to take advantage and make some serious cash. Prior to looking at this system I really only thought of of labor when thinking of an arbitrage across borders to other countries. Whenever we call for computer support or something else it seems like we always get someone from India answering the phone. I'm sure I've thought of other things but that is always at the forefront of my thinking when discussing this subject. Interesting to see other categories that an entity can take advantage of.
ReplyDeleteAs we talked in class on Shimano continuing to push ahead with spectacular R&D concepts we briefly talked about one of their upcoming projects. The electronic shifter… Check it out!
ReplyDeletehttp://www.youtube.com/watch?v=xu8WxhZYtC0&feature=player_embedded#!
Stan Olson and Kris Steadman
The electronic shifter is pretty sweet if you are looking at spending close to $2500.00 just for the shifter. Not within my budget but I guess Shimano likes to dream big.
DeleteBeing born and raised in bicycle country the Netherlands, I did some research to look if the Dutch bicycle manufactures are using Shimano components.
ReplyDeleteI thought the manufactures would only use Shimano components for sport related bicycles. But even for the so-called “lifestyle bicycles” {http://www.gazellebikes.com/Collection/Urban_bicycles/Comfort/Basic} are they using Shimano components.
For all members of the DEEP DIVE EURO/ DEBT CRISIS assignment. Great interview with World Bank president Robert Zoellick
ReplyDeletehttp://www.guardian.co.uk/business/2012/jan/26/eurozone-crisis-live-greek-debt-talks-resume-davos
X'clent. Get lots and lots of references like these for I think they give a deeper and broader understanding; it is this deeper and broader understanding that I want.
DeleteCEMEX - This is a solid company that leveraged good strategy with even better FSA's to take market share. They started at homebase and developed a solid model, assets and most important practices. They then took the business practices and leveraged them to turn distressed businesses into very profitable ones in a matter of months. It would be interesting to see how they are performing today since they were not fully vested in China or India when the case was written. The US and Euro markets have probably killed output unless the have been diverting to China and India. Be interested to know if anyone is versed on their current position.
ReplyDeleteI agree with Caleb in that Cemex made sure its FSA's would bring value in the acquisition process. Cemex had a great ability to pick and choose the companies which would help them continue to grow. I also found in interesting that Cemex moved toward a 1 model approach for all global locations. This company new how to acquire other company's and new how to cut costs and make them profitable in a short amount of time. Cemex had a broad portfolio of locations throughout the world which helped them have economic stability while other countries may have volatility. Cemex was very educated in its growth and was not buying to buy.
DeleteAnother comment that was not brought up in class in regards to Shimano would be the groups thoughts on horizontal intergration. What if they bought SRAM and any other competitors? They have the resources.
ReplyDeleteI had the same question in regards to this matter. Are there mergers on an international level which may not be allowed to happen do to monopolistic danger. In the US, certain companies are prohibited from merging due to control of market share and price hikes. Does this come as a problem in the international markets?
DeleteVery difficult to say on the issue of antitrust. The US has the Antitrust issue pretty well locked up. That being written, I can say that few other countries have antitrust high on their agenda. If it's integration Shimano should pursue, the more relevant question is who is on the horizontal end that makes sense in an acquisition? What benefit would that gain to a Japanese company like SHMNO.
DeleteIn the January 26, 2012 New York Times article, In China, the Human Costs That Are Built Into an iPad, by Charles Duhigg and David Barboza, a disconcerting example of arbitrage is pointed out regarding the exploitive use of manufacturing laborers in China. Poor work conditions – in fact dangerous conditions. Little regard for the human condition by the employer – in its efforts to eek out a profit by manufacturing iPads.
ReplyDeleteAs much as I would like to believe in corporate responsibility making a real positive difference in the lives of real people – the descriptions in this article reminded me of the poor work and life conditions of laborers during the industrial revolution that I studied in U.S. history.
I somehow think that if everyone that owns an iPad would read this article they may feel that the cost of their iPad is very much more than just what they paid for it.
My question - Can arbitrage happen without creating destructive results in the resources that are being exploited?
I agree with everything you said, DT. It is hard to believe that arbitrage can happen globally without creating destructive results in the resources that are being exploited. It seems like everywhere we look, whether it be in electronics or clothing we are benefiting so much in America by the cheapness of wages overseas and the poor work conditions that are out there, especially in Asian countries like China.
DeleteI think deep inside we would all like to support companies that do business with suppliers and other companies that stand up for this kind of thing. The only problem is, and I'm for sure guilty of this, is we are always looking for the best deal and the cheapest stuff. One of the only ways to accomplish that unfortunately is to do business overseas and this ends up being the result most of the time.
Even if Apple was to stop using Foxconn (the manufacturer in China) it would not be the end of the conditions. There are plenty of other consumer products being made by Foxconn and the like. It is going to have to be an industry push to improve these kinds of conditions. Additionally, the price of Apple products are such a great deal that if Apple were to relocate manufacturing to a place where worker conditions are better monitored it is likely going to increase the cost of the product. Will consumers be willing to pay higher prices?
DeleteKris Steadman & Stan Olson
As I read through the Cemex it gave me a good understanding of the use of the CAGE policies. If I look at any of the five distances I can see where Cemex has had to change to make sure they understand the potential impacts of these distances. Culture, after trying to operate in the U.S. They moved to Spain. Mexico was a former colony of spain and culturally shares a great amount including language. This made an easy fit for global expansion because of the lack of cultural distance. Administrative, the US imposed some serious limits to the amount of business that Cemex would be allowed to perform, because of the increased distance Cemex invested elsewhere. Geographic, you can easily see the growth patterns of Cemex as they expanded into countries closest to its home country. Economic, their strategy was to enter into developing countries and turn its cement manufacturing into efficient processies. Mexico is also a developing country and economically very similar to many of the countries that they entered. Also by diversifying their portfolio into these different countries this allowed them to stem difficult economic times in any one particular country.
ReplyDeleteI agree with Oliver in that Cemex had a true understanding of the principle of CAGE and RAT. The acquisitions which took place were well thought out, and they refused to acquire a location if it did not fit the model in which they had so much success. The R, Cemex made sure they had channels of distribution to make sure the meshed with cage and sure it was relevant with the strategy. A appropriable, made sure they had access to power and that he acquisition would bring value and it fit within the cage. T, the model made sure they had done this process before and and it would transfer to another company. This is why they looked to have one business model for the entire corporation would wide.
DeleteAfter reading this article I asked myself if CEMEX had a lot of success because it was a good cement company or a good acquisition company. Ultimately it seems as if the company was very good at both. From what I gather from the case the business strategy to diversify into other markets was an early competitive advantage for CEMEX. As acquisitions became the industry norm, CEMEX started to vertically integrate with its acquisition of RMC which again seemed to be an early strategic advantage as the company was able to see the shift in the market.
DeleteTrying to answer the question posted above about "what factors would you predict as having on the impact of the overall international venture?" To answer this question I would say that each case is different. Certainly CEMEX had a different international venture strategy than Shimano did because the industries are so different. So I find it difficult to answer this question. However, I do believe that the company should examine international ventures that closely align with its core strategies. I believe CEMEX did a great job of this, as the other posts indicate. CEMEX did not acquire companies just for fun. The acquisitions were highly thought out and strategic to compliment CEMEX's operations.
After reading HBR’s, “Making the Most of Foreign Factories,” I also started thinking about companies, like Apple, that have utilized foreign labor and production facilities extensively. The article speaks to the need to consider several factors in foreign production, and not simply cheap labor. This has been discussed at length in the recent Presidential debates regarding jobs in the USA. While the article points out some positive aspects of companies establishing international production plants, there remains the public perception, often deservedly so, that the ultimate goal of such companies is to obtain cheap labor. This is certain to continue be a hot topic of debate among corporate America. The article contains some insightful offerings, but how the benefits may outweigh the effects of public perception is something that should be closely considered.
ReplyDeleteYay, Tracy!
DeleteI think that firms believe that if they make a product, that they have to make it as cheaply as possible. One result is that all the externalities are not reflected in the price of the product. A livable wage may be derived when working at Foxconn ( Where they make the IPad and Iphone) but I don’t think I would want to work there. There was an article in Wired Magazine that discussed the suicides at the plant and things look grim. http://www.wired.com/rawfile/2010/11/thomas-lee-foxconn/. I would imagine the environmental stewardship is not equivalent to the US or Germany. Still, the quality is high as I have both and they both work well. I consider the quality to be more than adequate.
ReplyDeleteWhen I wonder if a product can be made in a higher cost environment, I think about Festool. This is a German woodworking tool manufacturer who makes highly innovative tools that are sold at a high price. They make a circular saw that sells for 10 times that of a Skill made in China. Why buy it? Precision and features. If Festool was not a private company, I doubt they still manufacture in Germany where labor and environmental regulations are higher. Are Festool’s profits as high as they could be? Probably not. Festool uses their location bound FSA of precision tool making and engineering educated workforce to manufacture at home and export to the US and other countries. Their reputation is known throughout the woodworking community and they command the price through that reputation. If I went to the store and saw they moved manufacturing to China, I might not pay the premium.
The world is full of products that can be made more inexpensively but people buy the premium product for reasons other than functionality (Think Rolex). This part of the market is small and will continue to be so as the bulk of manufacturing is done overseas. I sometimes wonder what business will be like in the US 40 years from now. Will we be selling insurance and other services to each other? Most likely until market forces bring manufacturing it back, if ever.
CEMEX and Shimano are definitely unique not havig the same exact approach to business. However in regards to both there are similarities that enable success because the pieces of the cage/rat were present. Shimano – though not literally taking over the world by buying it did take over the world of bicycle drive components by successfully creating dependencies world wide. Shimano was in such a strong position because everyone needed their components – a demand pull - such that Shimano didn’t have to buy the world to gain access to markets.
ReplyDeleteCEMEX was also looking for markets but by the nature of their product – expensive to move – getting their product to market meant buying the ability to move their product world wide. Cemex with every purchase bought the ability to move their product into other markets – but the demand pull already existed by virtue of development – especially in emerging markets. The core skill that enabled them to move so quickly was integration.
Linking our discussions earlier in the semester of if a product can be truly global, I believe the cement industry fits perfectly into that conversation as a product that has no borders. Virtually every country in the world needs cement for building structures. It doesn’t matter how far ahead or behind they are economically.
ReplyDeleteI loved in the CEMEX case how this company could do the exact same model of operations and implement that wherever they wanted to in the world have good success. They truly had a very sound understanding of what worked and how they could take advantage of that knowledge. Even when “experts” said they shouldn’t do some of things they were doing and buying some of the companies they were buying they did those anyway.
I’m interested to see how CEMEX is doing these days with economies they way they are throughout the world. It would be interesting to see. Has anyone looked into that? Is anyone familiar with this company in general prior to reading this case?
Yes, CEMEX seems to be the perfect fit for a global industry. They started local and slowly moved around the world and established themselves. As of 2005, they are doing well. According to their website, the are the global leader in builidng materials. That leaves me to think that they are doing pretty well! http://www.cemex.com/
DeleteAccording to yahoo, finance they are up by 1.34%, but still under $10 a share. http://finance.yahoo.com/q?s=CX
-Diana & Mikey
I agree with Diana that CEMEX is a good fit in the global industry. They have a product that is very simple and used in most construction projects around the world with intense margins. If you think about it, they have an ingenious business model. They purchase a gravel pit, pull all the aggregate (Sand and gravel) out of it, mix it with water and cement powder and sell it to the consumer. They control almost all there raw materials. When the aggregate runs out they in turn can sell the land for other uses and move onto another pit for production. With there focus on operational effectiveness through efficiencies and the leverage of the raw materials no wonder why there were one of the most profitable companies in the world.
DeleteIt was interesting to me that the first integration team CEMEX used took about 2 years to turn the new company over to the "CEMEX WAY", but by the end of the article, they had narrowed that turn around time down to 3 or 4 months. In addition, the company went from a standard team of all Mexican Nationals, to transition teams that were multi-national. A comment, I think toward the end of the article from the Chairman, mentioned these transition teams and what they learned from the original one was that there was little evaluation needed when entering a new market/country. This actually turned out to be a big advantage for CEMEX in competing with the other two top players for those same markets and industry. The key was for a team to come in, find/fix in-efficient processes and implement the standard, upgrade plant and equipment as needed and even bring in technology when/as needed. (Very surprising to read about the issues faced in Spain and the lack in having or even using technology).
DeleteI should state that I agree with all that has been written above. It only makes sense that CEMEX or any other company with such a commodity would be able to be so successful.
Another point that was interesting to me was how the company refinanced their operations from Mexico to Europe. Transitioning saved something like $100 Million a year for the company.
Started in Mexico, but I would disagree at this point that CEMEX is a Mexican firm. In the bigger picture, I think that the other two big firms are going to have a real tough time competing in the long run against CEMEX (all things considered, they really have profected their craft).
using the CAGE framework in regards to CEMEX. One can definately see a company that was able to take successfuly integrate its culture by moving from Spanish to English, as well as having international members on its management team. This helped homogenize the company and make them a universal force that could move into different markets with ease.
ReplyDeleteWe agree with Nate. CEMEX had a starategy that they were able to take to numerous locations. They kept the homebase in the original location and moved out from there. The learned the Culture of the territory with wanted to acquire. The administrative portion was taken care of. While they were on the other side of the world, they quicklky established facilities which also helped take control of the economic distance. Overall, CEMEX did well. Yes, there were bumps in the road, but they seemed to more forward and up in market shares.
Delete- Mikey, Tracey, Jared and Diana
With all those people having a conversation about CEMEX, you'd think you would have more to say!
DeleteThere are some really good comments on CEMEX so far, and I agree that it fits into the CAGE framework. A huge key to the success at CEMEX has to be its leadership under Lorenzo Zambrano. Here’s an interesting article about the company, its strategies for growth and the CEMEX Way, and Mr. Zambrano’s vision.
ReplyDeletehttp://www.nyse.com/pdfs/NYSE_p20_25_Cemex.pdf
I looked at this article too. I agree that the leadership behind the organization and the strategy which they follow can make or break an organization. CEMEX lucked out!
DeleteIt's interesting that CEMEX has been able to implement the CEMEX Way to run their company, but other companies that try to run their business this way run into difficulties. McDonald's tried to run this way for a long time and found success, but as they have tried to penetrate further into the global market their growth slowed significantly. It's easy to argue that food is a lot different from cement, but we wonder what challenges CEMEX faces in the future? The case seemed to praise the company entirely, but what will CEMEX run into that might slow it down or stop it?
ReplyDeleteKris Steadman & Stan Olson
The culture of cement
ReplyDeleteFor CEMEX the common cement culture matters more than the cultural differences that exist among countries – the workers on the plant floor can communicate with others about cement in spite of the language differences that exist. Cement has a language of its own that anyone in the cement business can speak. Of all the diamond/rat categories for CEMEX this one stands out.
Agreed. DT, I know your comment didn't get a lot of weight in class, but I agree that it definitely helps to be able to speak the language in any business. I believe that cement itself is a concept that definitely bridges a lot of gaps between cultures. I imagine in greatly helps CEMEX to be able to merge and acquire with other companies based on the fact that, when looking to join with another firm, it won't take long for CEMEX executives to learn if the potential partner "can talk the talk and walk the walk".
DeleteCEMEX has proven that they have bridged the gap between cultures, their business model has been successful all over the world. They have made acquisitions in many countries that may have not been so successful, but were able to make them successful. It is great that this company has such a great strategy that works in all different cultures.
DeleteCEMEX used the CAGE framework when expanding upon their borders. They recognized the cultural issues and chose Spain as their first international target. Spain has similarities that include a shared language and culture. Although the article does not go into a lot of detail as to the challenges CEMEX faced in their first international expansion, one can imagine the presence of a learning curve. Had CEMEX chosen Asia for a first expansion country, the cultural issues may have occupied more attention and hampered the success. Once CEMEX understood their FSA in organizational competence, they had a proven “product” that was then transferable to other countries.
ReplyDeleteFor the cement business, the geographical distance is significant in terms of logistics and a company will need to have a production facility located close to their market. (The exception was the large ocean transport vessel that worked in specific instances). With geography and culture accounted for, that leaves administrative and economic. They address the economic challenges by balancing their portfolio throughout the world using developed / developing countries and regional economic variation to their advantage. The remaining challenge is administrative where graft and corruption creates a challenge in some regional areas. CEMEX’s choice is to adapt or create such a strong economic advantage that minimizes the importance of payoffs at all but key levels.
My attempt at the questions:
ReplyDeleteTo get off the ground internationally the firm needs to have something special to share with the world – the FSA – whether that is being exported or developed/re-created in the international markets depends upon the type of FSA it is – knowledge, product, or processes – the physical or intellectual nature of the product has a lot to do with that. To me the cultural aspect of the diamond lends to the understanding of - is what our firm has to offer applicable anywhere else other than the home base? Access to capital markets looms large as well. It all leads up to being the smartest one in doing the particular business that you are trying to do. The diamond formula is different for every business. I think the usefulness of these ideas is in seeing how others have applied the knowledge to achieve international success and then recreating that success in your firms own unique way. I think the Late Movers article shows some good incite as to how to do this. Ranbaxy and Jollibee’s didn’t do something new – they did the same thing others have done but in their own unique way which enabled them to be successful. Ranbaxy is a lower cost R&D originator of new pharmaceuticals and Jollibee’s has the process and management efficiencies of McDonalds with the ability to adapt uniquely to it’s individual international markets.
Shimano's strategy in sending employees to work with bike manufacturers and retailers to guage consumer trends was the key to their success. In their industry the products which are built are easily substituted. By guaging consumer trends and focusing on research and development the company was able to create a strategy around innovation and satisfying the end user, rather than reducing production costs. If the company continues to make innovation its main priority they will continue to attract business and remain a leader in the industry.
ReplyDeleteI totally agreed that Shimano's successful strategy is to work closely with retailers and as well as professional athelets to understand their desires. Reducing production costs indeed can increase profit, but strengthen their brand name and be innovative in the bike industry is more important. I also amazed Shimano's strategy by standardizing accessories and catagorize into tiers. Provide more options to diffrent type of customers.
DeleteTalking about the CAGE Framework we spoke about in class last week. CEMEX knew changing the Administrative/ political, Geographic and Economic dimensions isn’t an easy job. But isn’t as hard as changing a culture.
ReplyDeleteCEMEX’s decision to go to Europe and start acquiring a company in Spain was in my opinion a great strategic move. CEMEX’s choice of Spain was based on “language and perceiving culture affinity”. The same happened when CEMEX began investing in Asia. “The choice of the Philippines was partially based on culture and Language – the country has been a Spanish colony.”
The way CEMEX approached every acquisition by moving a team into the new operation, study it, and then apply CEMEX’s best practices, including linking the acquisition into CEMEX’s global information system. By doing so, the profitability of the acquired plants will improve dramatically. The CEMEX approach shows that CEMEX is a good cement company and an even better acquisition company!
In the CEMEX case, the company investors and analysts had concerns about the company's risky approach in amassing large quantities of debt to finance its expansion. As I was looking through the news recently the company stock has risen from neutral to "buy" and according to businessweek CEMEX has more than a 50% probability of raising 1.5 billion dollars or more through asset sales in the next few months to pay off its debt.
ReplyDeletehttp://localizedusa.com/2012/01/31/cemex-sab-de-cv-cx-shares-upgraded-by-bank-of-america-bac-to-buy/
Cemex is a really interesting company. Through acquistions they have been able to expand internationally like a wildfire and at the same time still focus on improving operational efficiency. Through acquiring companies and vertically integrating they have been able to save tremendously and grow rapidly. How much better can their process get? Technological advancements will certainly help but the process needs to be expanded. Whether thats placing more emphasis on the ready-mix industry I don't know. Their vision towards the end of the article states,"The Cemex vision is to be a global player, with vertial integration from aggregates to cement, to ready-mix" It seems like their future expansion efforts may focus a little on ready-mix, I'm interested to see where the organization is headed.
ReplyDeleteMaking the most of foreign factories - Having worked with many factories in China this was a good look at how we might have been more effective while in them. The difference was that we had zero ownership in the factories and actually even outsourced the communication between our company and the factory to an agent. If we had a closer relationship with the factories we might have considered them a greater asset than simply a place to manufacture at a lower cost than others, this being the only thing we considered. In working closer with the factories to develop and source more of the product we might have been able to create a more innovative product and maybe even found cost savings outside of material and labor. We could have at least saved the fee we were paying our agent to manage communication and q/c. Partnering with factories that you own or maybe even just work closely and maximizing their capabilities is overlooked in most cases but there are clearly advantages that need further vetting.
ReplyDeleteI would have to agree that the materials are linear and seem to support one another. One thing that has stuck out to me is that location bound advantages (home base advantage) may also derive from non-government advantages which which firms are only able to access in a given location, the use of which requires physical presense in that location. Those same advantages are not available or accessable when firms move abroad into different cultural and economical environments.
ReplyDeleteA famous quote of William Blake states, "To be in error and to be cast out is part of Gods design". So whether its random or deliberate, it is an integral part of any process of creation and any process that is being perfected. A companies ability to make calculated decisions based on the amount or risk/error can either propel them forward into success or kill the organization. Now how you go about fixing the error is another story.
The company seems to be getting way to large to be able to continue to squeeze profits out of low-performing companies in semi-profitable markets. The company prides itself on its ability to tightly manage processes with the end of driving efficiency, but it can be remarkably challenging when the company is as large as it is. I understand that Cemex hedges their risk by allocating profitability in multiple markets, but the amount of debt the company has incurred would make any investor wonder how the company will be able to maintain profits and pay down debt. At this point, it seems that one crucial mistake would break the company's back and make it impossible for Cemex to pay back its debt.
ReplyDeleteCemex is an excellent industry for international growth because it would encounter minimal regulatory interference. Spain could be nationalistic about cheese or jamon serrano maybe, but what country is going to get nationalistic about something as benign and ubiquitous as cement?
ReplyDeleteChris you make a good point here. CEMEX in a way is not a very glamorous business that countries take pride in hanging their hats on. This could also contribute to their success. They can slip under the radar across markets they serve and at the same time pull in high margins underneath their simple and dirty product mix.
DeleteI thought this was an interesting..
ReplyDeletehttp://www.cemex.com/MediaCenter/Story/Story20111003_6.aspx
Cheers!
Week 5 Prompt
ReplyDelete"Also, if you were to address and measure cultural and economic difference across cultures as a measure of distance and effort, your firm should be successful. Do you believe that?"
I may not understand this question correctly, but it seems like you are asking us if we believe a firm will be successful when it measure cultural differences as distance and economic differences as effort. I don't know if I am completely sold on the idea that all correct measures lead to success, especially since a correct measure does not necessarily mean a correct decision is made concerning the data. If you look at the cultural difference as very distant from your own firm, and realize that the economic differences will mean a great amount of effort for your firm, and you still try and enter, then I don't think you will be successful. At least without some struggles.
Going off the prompt... ""Also, if you were to address and measure cultural and economic difference across cultures as a measure of distance and effort, your firm should be successful. Do you believe that?"
DeleteI think this can be true. If distance isn't a problem for your organization and you are willing to put in a great deal of effort, then cultural and economic differences should a "breeze."
I agree with Diana here. I also believe this to be true. cultural and economic differences can be overcome with effort. Organizations can one of two approaches. They can take a cognitive learning approach where they have potent resources to change the environment or a behavior learning approach where they change themselves to fit the demands of the environment.
DeleteICICI's Global Expansion
ReplyDeleteWith a team in place to analyze what is needed for ICICI to succeed "where many before them [have] failed" is a great opportunity for Dasgupta and Gupte to examine ICICI's virtual diamond. I think I would put Market Similarity at the 3.5 to 4.5 range, considering there is probably a lot of similarities between NRI and PIO groups banking habits across the globe. I would place National Advantage at a 3 considering ICICI's competition may have a stronger advantage in some areas. National regulation I would imagine would be around a 3 to 4 and Scale and Scope Economies probably around a 4 as well.
Any comments?
American Outsourcing
ReplyDeleteWhile other countries and making huge changes in policy to make it valuable to bring work within their borders as well as investment the US has not been competitive nor has it been active in protecting jobs. It is hard to compete with $1.00 per hour wages but we still owe it to ourselves to take a more active role in protecting work. Since we will probably not have a competitive advantage in manufacturing until the efficient markets take hold and wages increase offshore we should make it easy to invest in R&D, develop I/P and new technologies so we can start exporting these assets and services. We might have a better chance of making money off these types of assets if we can make policy changes that will hold countries accountable for pirating them. Investing in these assets will also demand a higher wage which is needed in the US. We might also invest in education to better increase our workforce for such work.
I agree with Caleb. Outsourcing is something that I believe is here to say. We can’t just easily put the genie back into the bottle on this. What we need to do is to ensure our education system is competitive, we provide a superior workforce, and we have economic incentives with tax codes to encourage businesses to locate and keep work here.
DeleteI will have to agree as well. Outsourcing is too prominent in today's society. It seems as if everything has the ability to be outsourced -- customer service, parts, technology.
DeleteI think that outsourcing customer service is the worst. When you call for service, you want someone at the "homebas" to answer and help you. On the otherhand, if all the parts are US and the assembly is done somewhere else, because it is a lot cheaper, is that wrong?
Indeed, outsourcing is too prominent in today's society. Globalization and outsourcing go hand-in-hand. I find it interesting that governments continue to worry about that this issue. American companies cannot compete with the $1.00 per hour wages for production in Asia and Mexico. Big multinational organizations only focus on their short term goals to make shareholders/investors happy and satisfied.
DeleteThe American government cannot win the battle and stop outsourcing. If they are smart they better use their energy and time towards creating a better environment for education, research, as well as development. By focusing on this, America can stay ahead in areas they are better in than the rest of the world.
The road to establishing world wide itellectual property rights that function as they do countries with highly developed economic activity is a long hard road. The idea of owning intellectual property for a lot of the world is very different from their cultural heritage - where the good of society outways everything individual. We may end up getting their with developing economies beginning to understand that their profits depend on these ideas too. But I think the journey may take a couple life times to accomplish. I could be wrong - profits are a pretty big motivator to change. Though India, China, and even Afghanistan have made progress in establishing law - enforcement is a hard challenge.
DeleteCEMEX
ReplyDeleteIt was smart for CEMEX to choose the initial acquisitions based on language and culture. This part of the CAGE analysis gave CEMEX an advantage and allowed for the company to relate to the country and its population. They also knew which markets they wanted to enter and they went in and conquered.
The codification of best practices also contributed to the country’s success. By implementing a set routine in each company, this not only creates efficiency across the board, but it also created a simple business model that can be replicated throughout each of their companies.
Not everyone can go into a company, turn it around and cut costs within the amount of time that CEMEX had.
Tina Vuu
I work for the Salt business unit of Cargill, which has production facilities in North and South America. Cargill Corporate has business units on every continent except Antarctica and is a global company in every sense of the term. Over time, Cargill has become successful because they listen to their customers and focus on the local needs. Cargill CEO Gregory Page talks about 'end-to-end awareness connectivity' where you don’t just look at the supply chain but understand everything else that is connected to it. (from Integrating Your Business Isn't Easy: Ask Cargill, June 2010)
ReplyDeleteIf a firm can truly understand its customers in the their host countries, then it can respond with value propositions that meet their needs. If you structure your business in line with the competitive framework of the host country, then you should be able to prosper.
Problem arise when the competitive framework may conflict with company values
To address the question regarding potential chaos and error when using the CAGE framework as a tool in international expansion - In the airline industry, the processes of international route expansion are extremely complex, and detailed planning can go on for years before the actual implementation of a route into a new country. Not only are governmental regulations and issues outside of the company’s control a huge part of the big picture, but anytime we are venturing into a new country with a culture very different from that at our home base, we are bound to encounter unforeseen challenges. Certainly mistakes have been made, on a small and a large basis, but in an industry that changes on a dime, it’s necessary to take steps to rectify issues as soon as possible. Flexibility is the key – with employees, route schedules, and potentially unforeseen costs. Airlines that continue to successfully add to international route offerings understand the concept of flexibility in operations, and readily anticipate that this will be a necessary part of the process.
ReplyDeleteLate Movers
ReplyDeleteI liked the example that they gave in the article of Jollibee. Although I've seen the fast food chain in California, I did not realize that this chain originated in the Philippines. They are definitely innovative in their ways and instead of just copying an established successful business model like McDonald's, they took what they were doing and turned it into something that adapted to different countries. Their home base also served as a base to keep their restaurants aligned through the same training, experience and expertise. This ensured that the successful business model did not stray too far from it's origins and yet still allowed each restaurant to differ just enough to suit customers' different tastes.
I real liked the hand out on My Outsourcing Life, it is crazy how many things we can outsource and the quality of what you are able to get. If those letters are real, I would hire Honey in a second! She is awesome, so polite and efficient. She is better than any assistant located in the US and she is doing this from across the world in a different time zone. It really makes you think about outsourcing your life!
ReplyDeleteI thought the article provided interesting insight to the growth of outsourcing and how the types of industries have continued to expand. I understand the perspective of the corporations and the need to reduce costs in order to deliver revenue to their shareholder. I wonder what type of industries / jobs will be outsourced in the future. I wonder if the evolution of the virtual office will change how jobs are outsourced in the future.
ReplyDeleteIt is also surprise to me that how much we are outsourcing to countries like China, Mexico, and India. From the reading, the main reason for outsourcing to China is because of cheap labor. But just between 2002 and 2008, the labor cost has jumped triple due to living standard has increase and worker are mandating for higher salary. Another interesting point is that the currency exchnage from UDS to Yaun was 8.3 and as of today is 6.3. It won't be long that China would be too expansive for outsourcing.
DeleteICICI - Management should leverage transferable FSA's such as technology and business processes to offset the overhead which is a part of retail banking. They should also identify perfect market and roll out slowly while fine tuning successes and failures. There are a few countries with high percentages of NRI's that are tremendously under banked. These would be a good starting point.
ReplyDeleteThere is also the possibility of taking over one of the existing firms that already have extension networks but low level technology. If ICICI could gain control of one of these firms they would inherit and existing FSA in the host country and could combine that with transferring their technology FSA to make sound growth happen quicker.
DeleteClass,
ReplyDeleteJust finished reading and intereting article on going global and wanted to share an interesting line from it.
"Venturing abroad offers a compelling growth proposition, but only if it’s done right. And the key to getting it right is know-how, not knowledge. The distinction is appreciable. Knowledge is a higher order of awareness that tells you why. Know-how is a higher order of knowledge that tells you how…how the international opportunity applies to you, and how you can capitalize on it."
I couldn't help but share this next clip. It really made me laugh!
http://www.youtube.com/watch?v=aA-tOsM6F4Y&feature=share
Go Global!
In reply to Canada's comment, I do agree that the know how is important in venturing abroad, however, I believe that knowledge also plays a big role. Knowledge leads the path to the know-how and both will go hand in hand if you wanted to pursue something in a foreign place.
ReplyDeleteTina Vuu
Over the last couple of months the western countries have not only imposed sanctions on Iran, but also convinced many Asian countries to do the same. The sanctions that are being imposed are an economically damaging bargaining technique to pressure Iranian officials into discontinuing their uranium enrichment program. It should be noted that European and United State officials are claiming to be a nuclear weapons program with malicious intent. In addition, a considerable amount of financial institutions that have been involved with Iran’s central bank have also been targeted. The assets of Iran’s central bank are currently frozen that are linked to Tehran.
ReplyDeleteThrough all of this India is remaining to be neutral to the Western sanctions, and have been researching possible investment opportunities in Iran. The primary venture that is proposed is a trade partnership for Iranian oil with Indian wheat. On the other hand another speculative bargain includes a petroleum-automotive transaction. But this tie between the energy, agricultural, and manufacturing industries is sure to be a strained by Iran’s lacking monetary state.
What we have seen in the past is the residual effects of sanctions on the global economy often lead to Inflation, shortages, and debt repayment issues.
I am very curious to see what other long-term effects will come of this?
Stan Olson adn Krist Steadman
The big problem with ICICI was that they tried to grow too fast with a new pattern and emphasis on business which put a lot of stress on the company with the rapid growth. And they didn't really differentiate in terms of how they dealt with the customer as well. The growth needs to be at a pace that will sustain the current success without losing the ability to meet customer demands. If they aren't keeping up with their customers then it will be difficult to prevent customers to go to another firm.
ReplyDeleteKris Steadman and Stan Olson
Class,
ReplyDeleteWhen preparing for the deep dive paper, I was doing some research on intellectual property and patents, and i stumbled across an interesting article.
Give it a read if you have a free minute or two. I found this to be incredibly interesting and educating.
http://www.bc.edu/bc_org/avp/law/lwsch/journals/bciclr/25_2/09_TXT.htm
Interesting article about Master Lock "insourcing" jobs. Bringing jobs back to the US. It also discusses unfair trade practices by China.
ReplyDeletewww.cnn.com/2012/02/15/obama-blueprint-tour/Index.html
While researching on my deep dive paper, I found an interesting top on our world population. As of today we are reaching at 7 billion of people worldwide and increasing at a rate of 73 million per year. So, it was predicted that our world population will be at 11 billion by year of 2050. The intersting point of that is if we produce the same about of food today, we will need to increase our food supply by 70% in order to feed our future population. If we don't, there will be lots of people who will be starving.
ReplyDelete