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Globalisation

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Globalisation A Presentation by A.V.Vedpuriswar THE LONG TRADITION OF MUTINATIONALISM Multinational races : Aryans, Mongolians Multinational religions : Christianity ... – PowerPoint PPT presentation

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Title: Globalisation


1
Globalisation
  • A Presentation
  • by
  • A.V.Vedpuriswar

2
THE LONG TRADITION OF MUTINATIONALISM
  • Multinational races Aryans, Mongolians
  • Multinational religions Christianity, Islam,
    Buddhism.
  • Multinational empires Greek, Roman, Spanish,
    Turkish, British
  • Multinational companies European, Japanese,
    American
  • The East India Company

3
MULTINATIONAL, GLOBAL AND INTERNATIONAL COMPANIES
  • Multinational builds strong local presence
    through sensitivity and responsiveness to
    national differences.
  • Global Builds cost advantages through
    centralized global scale operations.
  • International parent companys knowledge and
    capabilities transferred to individual countries
    accompanied by marginal adaptation.
  • (Bartlett and Ghoshal)

4
  • MNC Global International
  • Configuration of Decentralized
    Centralized, centralization of core
    competencies
  • assets, capabilities nationally
    globally decentralization of
    other activities
  • self sufficient
    scaled
  • Role of overseas Sensing and
    Implementing Adapting and leveraging
    parent company operations exploiting
    local parent company competencies
  • opportunities
    strategies
  • Development and Knowledge
    Knowledge Knowledge developed at the
    center
  • diffusion of developed and
    developed and and transferred to overseas
    units
  • knowledge retained within
    retained at
  • each unit
    the center

5
  • Ethnocentric Home office people put in charge
    of key international positions.
  • Polycentric Local nationals placed in key
    positions and allowed to appoint and develop
    their own people.
  • Regiocentric Depends on local managers from a
    particular geographic region to handle operations
    in and around that area.
  • Geocentric Attempt to integrate diverse regions
    of the world through a global approach to
    decision making. Subsidiary and headquarters
    managers are treated on equal terms.

6
  • Ethnocentric means
  • top down style
  • global integration
  • culture oriented towards home country
  • product development determined primarily by the
    needs of home country customers
  • people of home country developed for key
    positions throughout the world

7
  • Polycentric means
  • bottom up approach
  • national responsiveness
  • culture oriented towards host country
  • local product development based on local needs
  • people of local nationality developed for key
    positions in their own country

8
  • Regiocentric
  • governance mutually negotiated between region and
    its subsidiaries
  • regional integration and national responsiveness
  • regional culture
  • standardization within a region but not across
    regions
  • regional people developed for key positions
    anywhere within the region

9
  • Geocentric means
  • governance style mutually negotiated at all
    levels of the corporation
  • global culture
  • global products with local variations
  • best people developed everywhere in the world for
    key positions everywhere in the world.

10
Extreme Stage of Globalisation
  • Global market participation
  • Global products and services
  • Global location of activities
  • Global marketing
  • Global competitive moves

11
Extreme Global value chain
  • Country Activity
  • A Research Development
  • B Design
  • C Purchasing
  • D Manufacturing
  • E Marketing
  • F Selling
  • G Distribution
  • H Service

12
  • The traditional paradigm
  • M.N
    Global Intnl
  • Responsiveness Unilever Kao
    PG
  • (Branded
  • packaged goods)
  • Efficiency Philips Matsushita
    G.E
  • (Consumer
  • electronics)
  • Transfer of
  • knowledge ITT NEC
    Ericsson
  • (Telecom
  • switching)

13
TODAYS PARADIGM
  • Need to compete on all three dimensions
    simultaneously
  • National responsiveness
  • Global efficiency
  • Need to share knowledge across the system
  • A Transnational corporation has such
    capabilities.
  • We shall use Global and Transnational
    interchangeably in this presentation.

14
Unilever
  • Founded in 1885 by William Lever
  • Very early bid to enter export market
  • Aided by Britains capabilities as a colonial
    power
  • Representatives sent to each markets
  • Hands on centralized style of management
  • After his death, Overseas committee set up
  • Need for more autonomy to divisions felt
  • More local competition meant need for locally
    manufactured products

15
Unilever, contd...
  • Trade barriers in the 1920s and 1930s
  • Soon, Self-sufficient fully integrated National
    Operations
  • Ization process in 1930s. Expatriates replaced
    by local CEOs
  • Outbreak of World War II
  • Breakdown of Communications with London.
  • Watchwords Local initiative and decentralized
    control

16
Unilever, contd...
  • After World War II, Geographically supported
    structure supported by product coordination
    groups to transfer learning- Matrix structure
  • All businesses however similarly managed
  • Mid 1970s- Differences across businesses felt
  • Chemicals / Detergents needed standardization
    and integration.
  • Foods needed customization
  • 1970s PG launched new laundry detergents based
    on rapeseed

17
Unilever, contd...
  • Unilever companies responded individually with
    13 different products
  • Resistance from companies to accept technological
    guidance from centre
  • Management soon realised the need to revamp
    processes
  • Businesses Functions Tasks
  • Chemicals Research Product Policy
  • Detergents Product Devpt. Advertising
  • Personal Products Manufacturing Pricing
    Distribution
  • Packaged Foods Marketing Sales Promotion

18
  • Responsibility to companies now given within a
    framework of more globally designed policies and
    strategies.
  • Unilever now realises that organisational
    requirements vary from business to business.
  • Personnel Need for a global mindset
  • Job rotation
  • Training programs in England
  • Job assignments for International Managers in HQ
  • Mike Heron - High recruitment standards. Only
    First Class people taken
  • Cross Unit transfers.

19
  • INTERNATIONAL SERVICE SYSTEMS(ISS)
  • 2 billion company in the commercial cleaning
    business with operations spanning 17 countries
    on three continents.
  • Paul Andreassen , CEO broke up powerful national
    entities into half a dozen small companies per
    country. More expensive arrangement but
    Andreassen went ahead to develop a sense of
    identity and ownership
  • ISS organized around small independent units to
    which employees felt intense loyalty. In the
    process, entrepreneurship allowed to flourish.

20
  • Individual initiative helped in many ways
  • Specialized capabilities for cleaning meat
    section and freezers
  • Entry into new areas such as airports, rubble
    disposals, abattoir cleaning, labeling, uniform
    cleaning and repair of shopping carts
  • Andreassens commitment to entrepreneurship in
    frontline units reinforced by building Chinese
    walls to keep senior executives from meddling in
    operations
  • Separate Board of Directors for each national
    subsidiary, springboard for new ideas

21
  • Autonomy and empowerment balanced by demanding
    performance standards- 5 profit before tax, 12
    growth target
  • Andreassen less interested in running operations
    and more in building an ambitious organization.
    Felt ISS should consider itself not to be a
    cleaning company but the worlds best service
    organisation.
  • Andreassens visionary leadership-
    insightfulness, inspiration, open mindedness.
  • Importance attached to development of employees

22
  • Five Star training and development program took
    motivated and competitive frontline cleaning
    supervisors and by systematically developing
    their technical and administrative skills, grow
    them into operating level entrepreneurs.
  • First six months on the job, employees given
    training in cleaning techniques such as which
    chemicals to use on specific stains and surfaces,
    as well as on safety.
  • After six months, employees move from applied
    chemistry to applied economics. They learn how
    to interpret contracts and evaluate profitability
    of each contract. This training comes in handy
    when

23
  • when employees become team leaders.
  • Once employees become team leaders, they receive
    advice on dealing with customers and learn how to
    coach junior members of the team. Team leaders
    are evaluated on the basis of both profitability
    and customer retention.
  • Thanks to the extensive training programs as well
    as its back office expertise, the company can bid
    for complicated contracts offering cleaning,
    catering and laundry services to a hospital.
  • In 1997, ISS won a contract to clean hotel rooms
    in Disneyland Paris, a very demanding customer.

24
  • ISS has sold off its university in order to
    decentralise training and tailor the programs to
    suit local conditions
  • Accounting crisis due to lax internal controls in
    the US. Almost drove company to bankruptcy. Sold
    the American business in 1998.Subsequently,
    business has recovered.
  • ISS a success story in globalization in an
    industry considered to the most local of
    businesses.
  • Other international firms in the business-
    Rentokil Initial (Britain), Abilis(Netherlands)
    and Service Master(US)

25
Ericsson
  • By 1920s Substantial Worldwide Network of
    National Operations
  • Strong technological capabilities at Headquarters
    Gradually, subsidiaries became independent
  • Duplication of effort, Divergence in technology,
    Lack of competitiveness in Servicing
  • Need for centralization
  • 1950s RD Strengthened
  • Leadership position in Cross bar switch (earlier
    Strowger Switch)

26
  • 1960s New Challenges,Pressure from local
    Governments for technological transfer
  • Development responsibilities delegated to local
    outfits.
  • Need to exploit comparative advantage in assembly
    processes
  • Mid 1970s RD Centralized
  • When National capabilities existed, local
    managers were transferred to HQ in the 1980s
  • When local Govt insisted on local RD, Australian
    Engineers led the development of AXE switch in
    1982. They designed several key

27
  • components. The local managers strong and
    entrepreneurial leadership strengthened the
    subsidiarys capabilities beyond what was needed.
  • Later, some technicians were transferred to HQ
  • Motivation and transfer of knowledge achieved
  • Without appropriate management, building excess
    resources in a non critical environment can be
    counterproductive. On the other hand, too many
    restrictions on the development activities of
    subsidiaries can frustrate skilled and
    experienced personnel.
  • RD team in Australia given worldwide development
    tasks. Half the team attached

28
  • to HQ. Contrast with American MNCs having
    Canadian subsidiaries.
  • HQ managers emphasise the importance of
    developing strong country organizations to
    generate sales and to tap into locally available
    resources. Local managers encouraged to think of
    themselves as part of worldwide group rather than
    as independent units.
  • Mechanisms- constant transfers, frequent
    assignments on HQ subsidiary teams, allocation of
    worldwide product responsibilities to national
    firms.

29
  • Software today represents a larger portion of
    value added. Ericsson has been transferring some
    development activities to advanced overseas
    operations.
  • Sensitiveness and flexibility in the wake of
    changes in the environment.
  • No one group allowed to dominate. When overseas
    units became independent, reigned in. Also
    balance of power retained between product and
    functional groups.
  • Balanced two way flow of ideas between HQ and
    subsidiaries. Differences resolved in national
    level board meetings which serve as legitimate
    forums.

30
ABB
  • 1988 Merger of Asea Brown Boveri
  • 1300 companies in 140 countries
  • 65 Global business areas
  • Companies reported to product as well as regional
    Managers
  • New Information and Reporting system - ABACUS
    (ABB Accounting Communication System)

31
  • Unambiguous performance standards
  • Feedback by showing relative performance of
    various units
  • Balance between Strategic and Operational
    objectives through matrix structure
  • True empowerment
  • 90 of RD expenditure, 95 of HR activities left
    to subsidiaries
  • Could borrow locally and retain up to 30 of
    earnings
  • ABACUS used judiciously

32
  • Potential to globalize varies across
    businesses.For turnkey projects / total business
    solutions, high level of coordination needed
    across subsidiaries, Other businesses heavily
    local. Compare electrical installation and
    service with combined cycle power plants.
  • Barnevik The vast majority of our businesses
    fall somewhere between the super local and the
    superglobal. These are the businesses in which
    building a multi domestic organization offers
    powerful advantages.

33
  • ABB Deputy CEO, It is wrong to say that because
    we are global, we are uniform. The world is too
    different and human beings are too diverse. You
    need to adapt to their individual needs It is
    important in many of our markets to project a
    distinctive national profile. We have to be a
    Finnish company in Finland, a German company in
    Germany, a Swiss company in Switzerland and an US
    company in the United States. It is how well you
    bridge the differences that in turn will make you
    successful.

34
  • Head of Power Transformers We have 25 countries
    around the world, each with its own President,
    Design Manager, Marketing Manager and Production
    Manager. These people are working on the same
    problems and opportunities day after day, year
    after year and learning a tremendous amount. We
    want to create a process of continuous expertise
    transfer. If we do that, this is a source of
    advantage, none of our rivals can watch.

35
  • Barnevik The thing I watch when say, a German
    manager has to appoint someone, he very often
    will come up with a German. It is not because of
    nationality and language but because he usually
    knows the person better. I tell him to go and
    interview candidates in other countries. Maybe
    it will make him think that it will be useful to
    have say an Italian or an American on his senior
    staff.
  • Mixed nationality teams and personal alliances
    across borders encouraged. Executive Committee to
    oversee ABBs global strategy and performance.
    Members drawn from different nationalities.

36
  • Response to changing environment by reducing
    number of business areas, companies to make the
    system more manageable
  • Barneviks vision global and local, big and
    small, decentralised with central control
  • Top managements role create a congenial
    environment and lay down guidelines for
    management behaviours. Those close to scene of
    action allowed to take decisions.
  • Behavioral Characteristics - Stretch Trust
  • Barnevik Thinking- the strategies and designs-
    only gets you 10 of the way. Ninety to
    ninetyfive percent is in execution.

37
A Global Corporation
  • Running a global company is an order of
    magnitude more complicated than managing a
    multinational or International firm. The Global
    or transnational corporation looks at the whole
    world as one market. It manufactures, conducts
    research, raises capital and buys supplies where
    ever it can do the job best. It keeps in touch
    with technology and market trends all around the
    world. National boundaries and regulations tend
    to be irrelevant or a mere hindrance. Corporate
    headquarters might be anywhere

38
  • VIJAY JOLLY, IMD, LAUSANNE
  • A global company has the following
    characteristics
  • Ability to compete in any market it chooses
  • Ability to bring entire worldwide capabilities to
    bear on any transaction elsewhere

39
A company can operate in all countries of the
world. but if what it does in one country has no
meaning for what it does in others, it is no
different from the domestic companies with which
it competes.
40
GLOBAL CHARACTERISTICS
  • Market share
  • Sourcing all assets not just production on an
    optimal basis
  • Contestability
  • Global orientation of all functions

41
Evolution of the Global Organisation
  • Simple Export
  • Export Manager
  • Export Department / Warehousing
  • Sales Branches / Subsidiaries
  • Assembly abroad
  • Production abroad
  • Contract
  • Licensing
  • Direct Investment viz. Joint Venture, Wholly
    Owned, Acquired, Turnkey.
  • Integration Coordination of foreign affiliates

42
Multi Local Vs Globalised
  • Multi Local - Tailoring country specific
    strategies to maximize local competitive
    advantage.
  • Globalisation - Coordinated Approach, Sharing
    and Integration

43
Key Issues
  • Globalisation Vs Non Globalisation
  • Degree of Globalisation
  • Activities to be globalised
  • Paint Industry
  • Restaurants

44
Key components of total global strategy
  • Development of Core Business Strategy
  • Internationalisation
  • Globalisation

45
Core Business Strategy
  • Types of products, services to be offered
  • Types of customers to be targeted
  • Which geographical markets to target?
  • Functional strategies
  • Competitive strategies

46
Business Strategy A paradigm shift
  • Satisfying demand Creating demand
  • Excellence in operations Strategic vision
  • Hardware Software
  • Vertical Integration Outsourcing
  • Natural resources Knowledge
  • Tangibles Intangibles
  • Commodities Brands
  • Mass production Mass Custmn

47
Internationalisation
  • Selecting the geographic markets
  • Adaptation of products programs to take into
    account foreign needs, preferences, culture,
    language etc.
  • System not tightly integrated

48
Globalisation
  • Integration Management of strategies for world
    wide business leverage competitive strategy
  • Aspects of strategy to be globalized
  • Evaluating the costs benefits of globalization

49
Macro Factors encouraging Globalisation
  • Growing Similarity in Consumer tastes
  • Reduction of tariff non tariff barriers
  • Heavy technology investments
  • Communications Information Revolution
  • Impact of Japanese Corporations
  • Air transport cents 68/mile(1930)
    11/mile(1990)
  • 3minute call 244.65(1930) 3.32(1990)
  • Unit of Computing power -- steep fall.
  • Sea freight fell by 70 between early 1980s and
    1996

50
Globalisation Drivers
  • Common customer needs
  • Global customers competitors
  • Global channels
  • Transferable marketing
  • Lead countries

51
Increasing Globalisation of the World Economy
  • EXPORTS AS A PERCENTAGE OF GLOBAL OUTPUT
  • 1913 9
  • 1950 7
  • 1973 11
  • 1990s 14
  • In 1996, global FDI was 3200 billion.

52
Role of Government
  • Favorable trade policies
  • Compatible technical standards
  • Common marketing regulations
  • Government owned competitors/consumers
  • Host Government concerns

53
THE GLOBAL MENTALITY
  • A. The UN Model assumption
  • Subsidiaries have similar importance and
    requirements
  • Resources and competencies are centralized
  • Subsidiaries are expected to implement
    standardized global strategies
  • B. The Headquarters hierarchy syndrome
  • Clear superior-subordinate leadership
  • Attempt by headquarters to control key
    decisions and resources

54
Lead Countries
  • Japan - Consumer electronics
  • Germany - Industrial control equipment
  • USA - Computer software
  • Denmark - Insulin
  • Italy - Ceramic tiles
  • France - Cosmetics

55
  • COORDINATION MECHANISMS
  • Centralization
  • Coordination in most Japanese companies shaped by
    a consensus decision making process which is
    culture specific and which requires intensive
    communication.
  • Difficulties in transferring this style abroad.
  • Many Japanese companies have developed
    international coordination processes that rely
    on direct actions and intervention of the
    Headquarters Management Group

56
  • Centralization is very costly to operate. As the
    organization grows in size and complexity, HQ
    might find it difficult to deal with requests
    from subsidiaries. Size and bureaucracy of the
    central decision making unit increases till it
    reaches the limit. Subsidiary managers might also
    find it demotivating.
  • Formalization
  • The growth of US MNCs was shaped in an era of
    professional management in which greater
    delegation of responsibility was made possible
    by the development of sophisticated management

57
  • systems that allowed corporate managers to
    control operations and hold other managers
    accountable for delegated tasks. Thus, the
    coordination process for most American companies
    was based largely on formal systems, policies and
    standards.
  • The routinisation of decision making delivers
    important operating efficiencies that are the
    hallmark of this means of coordination. Decision
    making is subjected to a set of impersonal
    policies that assume a power independent of the
    interests and motives of either headquarters or
    subsidiary.

58
  • The problems associated with this method include
    the high cost of establishing the systems,
    policies and rules. A routine decision making
    approach may not be appropriate in the face of
    complex and changing tasks that MNCs often face.
  • Socialisation
  • European companies expanded at a time when global
    communication was slow and expensive. They also
    did not have the systems expertise of American
    companies. Management of subsidiaries was
    typically given to family members or trusted
    acquaintances. The management process relied on

59
  • individuals understanding of corporate
    objectives and their personal relationships. This
    coordination mechanism depended heavily on
    careful recruitment, development and
    acculturation of decision makers.
  • Socialisation is attractive because it does not
    have the problem of headquarters overload
    associated with centralization and the
    inflexibility associated with formalization.
    Since it depends on shared values and objectives,
    it represents a more flexible and robust means of
    coordination. Decisions reached by negotiations
    between

60
  • knowledgeable groups with common objectives
    should be much better than those made by superior
    authority or standard policy.
  • The major problem associated with socialisation
    is cost. It takes the decision load off top
    management by institutionalising its goals
    throughout the organisation. However, ensuring
    that mangers share objectives, priorities and
    values demands indoctrination and training
    requiring substantial investments. In addition,
    decision making processes are usually slower,
    ambiguous and more complex. Socialisation depends
    heavily on transfer

61
  • of managers and use of expatriate managers which
    can be very expensive. Sometimes negotiations can
    also be long drawn out consuming plenty of time
    and energy.

62
DESIGNING GLOBAL PRODUCTS AND SERVICES
  • Standardize core product
  • Build additions and features to customize
  • Automobiles
  • Canon
  • Computer hardware
  • Textbook publishing
  • Process control instruments
  • Chocolates
  • Telecom- convergence of standards

63
GLOBAL MARKET PARTICIPATION
  • Significant global market share
  • Balance between geographic and market spread
  • Presence in globally strategic country markets
  • Globally strategic markets
  • Large source of revenues/profits
  • Home market of global competitors
  • Home market of global customers
  • Significant market of global competitors
  • Major source of industry innovation

64
  • Portfolio approach is useful.
  • MNC strategies- multilocal or global
  • CNDs Leverage parents expertise in product
    development, manufacturing, quality control,
    marketing , Stand alone management

65
  • Approaches
  • Develop products with global market in mind
  • Understand reasons for product variations
  • Pay equal importance to product similarities and
    differences across markets

66
FORMULATING A GLOBALLY LEVERAGED STRATEGY
  • Strategic advantage core business strategy
  • Comparative advantage low labour costs,
    superior technological infrastructure
  • Core formula strategy Strategic advantage
  • Cost based export strategy Comparative
    advantage
  • Globally leveraged strategy
  • Untenable strategy

67
  • Guidelines for locating global activities
  • Start with zero based approach
  • Different activities have different
    centralisation/decentralisation needs
  • Ideal pattern of locations is dynamic
  • Some activities such as RD need presence in
    globally strategic countries.
  • Coordination of geographically dispersed
    activities can substitute in some cases for
    global centralization
  • Consider both strategic and comparative advantage

68
  • In the case of RD, globally strategic countries
    are characterized by
  • a) major source of industry innovation
  • b) presence of highly skilled low cost/ RD
    workers
  • c) highly demanding customers
  • For manufacturing, globally strategic countries
    are characterized by
  • a) favorable factor conditions
  • b) close location to major markets
  • c) favorable country of origin effect
  • d) manufacturing presence of global competitors

69
Examples (Location of Activities)
  • BECKTON DICKINSON
  • Production USA, Ireland, Mexico, Brazil
  • Standardized products
  • Standardized production processes
  • Benefited during Mexican peso crisis

70
Examples contd...
  • CERAMIC TILE INDUSTRY
  • 1960s,1970s Batch process, Skill oriented
  • Base in Germany. Later, continuous process
    operations, new technology
  • Skills available in Italy Low cost of capital,
    cheap labour
  • 1990s Paris, Milan - Design
  • Italy, Portugal - Production
  • Germany, US - Marketing

71
  • . ARROW SHIRT
  • Cotton 1
  • Ginning 1
  • Spinning 1
  • Weaving 1
  • Finishing 1 Total cost 60
  • Dyeing 1
  • Designer 6
  • Tailor 6
  • Wholesaler 6
  • Retailer 18
  • Promotion 12
  • Organiser 6
  • ---

72
DEVELOPING A GLOBAL MARKETING STRATEGY
  • Positioning Similarity of business competitive
    position, purchase motivation and use/
    consumption pattern
  • Brand Name Global acceptance/ prestige of home
    country brand name, meaning, ease of
    pronunciation
  • Packaging Similarity in the information to be
    communicated, usage patterns measurement
    systems, acceptability of multi language labeling

73
DEVELOPING A GLOBAL MARKETING STRATEGY contd...
  • Advertising
  • Same copy strategy
  • Same script, different execution
  • Identical advertisements
  • Global Local tactical campaign
  • combination often used
  • Sales promotion Least likely candidate for
    globalisation, Trade shows an important exception

74
Global Marketing in action
  • Marlboro
  • 3M - Magnetic tapes
  • Nissan / Datsun
  • Fosters
  • Mc Donalds
  • Beer (Germany)
  • Coconut, Mango Shakes (Hong Kong)
  • General Foods - Coffee
  • Black (France)
  • With Milk (UK)
  • Chicory (Latin America)

75
Global Marketing in action contd...
  • Coca Cola
  • Unilever
  • Lux
  • Sunsilk
  • Food Products

76
Making global competitive moves
  • Cross country subsidization
  • Counter parry
  • Globally coordinated sequence of moves
  • Preemptive
  • Global plan necessary to attack global
    competitors. However, involve country managements
  • Dimensions Product lines and customers of the
    competitor to target, selection and timing of
    countries for offensive moves
  • EgVCR Industry. Matsushita Vs GE, RCA, Zenith

77
  • Early mover advantages - Market share, standards,
    costs and quality advantages
  • Global approach means more options for both
    offence and defence.
  • Pitfalls - Dip in revenues, profits ,
    deterioration of competitive position in
    individual countries, Lack of perspective among
    individual country managers

78
Building a global organisation
  • Organisation structure
  • Management processes
  • People
  • Culture

79
  • Structure
  • Centralised global authority
  • No domestic- international split
  • Management processes
  • Coordination
  • Technology sharing
  • Information systems
  • Strategic planning
  • Budgets control
  • Performance review and compensation

80
  • People
  • Comfortable with multi country careers
  • Prepared with extensive travel
  • Culture
  • Global identity

81
  • Cultural assimilator Programmed learning
    technique designed to expose members of one
    culture to some of the basic concepts, attitudes,
    role perceptions, customs and values of another
    culture.
  • Some assimilators use critical incidents. A
    situation is classified as a critical incident if
    it meets one of the following conditions
  • a) An expatriate and host national interact in
    the situation

82
  • b) The situation is puzzling or likely to be
    misinterpreted by the expatriate.
  • c) The situation can be accurately interpreted if
    sufficient knowledge about the culture is
    available
  • d) The situation is relevant to the expatriates
    task or mission requirements.

83
  • Cultural dimensions
  • Power distance
  • extent to which less powerful members of
    institutions and organisations accept that power
    is distributed unequally.
  • Uncertainty avoidance
  • extent to which people feel threatened by
    ambiguous situations and have created beliefs and
    institutions that try to avoid these.
  • Individualism
  • Tendency of people to look after themselves and
    their immediate family only.
  • Masculinity
  • Situation in which the dominant values in society
    are success, money and things

84
Case Study - Li Fung
  • Largest export trading company in Hong Kong.
    Turnover 1.7 billion in 1997
  • Innovative Supply Chain Management practices
  • Customers - American European Retailers
  • Clothing, Consumer Goods - Toys, Fashion
    Accessories, Luggage etc.
  • Founded in 1906
  • In the 1970s Victor Fung William Fung joined
    the family business. Both from H.B.S.

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  • Challenge - to transform Li Fungs role of
    buying agent who was getting squeezed between
    buyers and factories.
  • Extended Geographic reach. Set up offices in
    Taiwan, Korea and Singapore.
  • Knowledge of region generated key competitive
    advantage. Quotas, Hong Kong strong in Cotton,
    Taiwan better in Synthetics.
  • Working with a large number of countries led to
    assortment packing by sourcing at the most
    efficient location

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  • Next Step - Management of manufacturing programs.
    Discussion with client to develop prototype,
    product mix, production schedule. Coordinate with
    factories to ensure quality and on time delivery.
  • Reconfiguration of value chain by moving Labour
    intensive production to China.
  • Dolls
  • Design in Hong Kong
  • Molds in Hong Kong
  • Manufacture of dolls Painting in China
  • Final testing, inspection, packing in HK
  • Distribution Finance coordinated from HK

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  • Garments
  • Buy yarn from Korean Producer.
  • Weaving Dyeing in Taiwan.
  • Buy zippers from Japanese company YKKs
    production facility in China.
  • Make Garments in Thailand based on Cheap labour
    and availability of quotas.
  • Manufacturing done at number of factories in
    Thailand.
  • We dissect the manufacturing process and look
    for the best at each step. Were not asking which
    country can do the job overall. Instead we are
    pulling apart the value chain and optimising each
    step and were doing it globally.

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  • Today, assembly is the easy part. The hard part
    is managing your suppliers and the flow of
    parts.
  • Smokeless Factory
  • Responsibilities - Design, procurement
    inspection of Raw materials, set up production,
    inspect output. However, do not own factories,
    dont manage workers.
  • 30 - 70 of Factory production purchased by Li
    Fung
  • Building blocks - Customer focused divisions.
    Each product group executive also given country
    responsibilities.

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  • Financial controls Operating procedures -
    Tightly Centralized.
  • Cash flows managed centrally in HongKong.
  • LCs sent to Hongkong for approval.
  • Increasing use of Information Technology but
    equal importance given to relationships.
  • As a pure intermediary, our margins were
    squeezed. But as the member of the supply chain
    options expands, add value for our customers by
    using information and relationships to manage the
    network. We help the companies navigate through a
    world of expanded choice. And the expanding power
    of IT helps us do that.

90
  • Value Chain Configuration
  • Hong Kong Front End Design Engineering
  • Production Planning
  • Back End Quality Control
  • Testing. Logistics.

  • Finance
  • Outside Raw material and component sourcing
  • Management of production.

91
  • Thank You
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