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Submitted to: Mrs.

Salma Akhtar Subject: ITB301 Section: 03 Submitted by: Quazi Aritra Reyan ID: 2010-1-10-145

Blockbuster Video
Q.1 Why do you think Blockbuster has used various operating forms ( company=owned operations, joint ventures, and franchises) for the different foreign markets it has entered?

Ans. Blockbuster used various operating forms such as company-owned operations; joint ventures, and franchises for their different foreign markets. The operation they used depends upon the place they entered. They need to use strategy that applies to that certain country. Like for example, in the British market, the operating form they used was the company owned operation. This is because franchising was not yet developed in the United Kingdom video store market. While in Japan, the company planned to expand in this country through franchising its outlets and expected to have a thousand store by the year 2000. Another reason why they need to use various operating forms is that they get different benefits from the different operations. Joint venture refers to a cooperative effort among two or more organizations who

share a common interest in a business enterprise or undertaking. In this case, Blockbuster made a cooperative effort with Cityvision in the United Kingdom as a springboard for their expansion into France, Germany, and Italy via joint ventures. The company also made a 50/50 joint venture with a Japanese partner, Fujita Shoten. The benefits they get from having a joint venture are: First, the tax benefits that some nations extend to companies with local partners or a lack of finances, personnel, or local marketing expertise. The second benefit is a matter of policy so as to reduce investment.

Q.2 What are the advantages & disadvantages of Blockbuster expanding abroad rather than concentrating on the U.S. market?

Ans. Advantages: Faster growth: Firms that have operate internationally tend to develop at a much quicker pace than those operating locally & Blockbuster also made quite a quick growth in U.K., Japan, France, Germany , Italy. Access to cheaper inputs: Operating internationally enabled Blockbuster to source raw materials or labor at lower prices Increased quality and efficiency: Exposure to foreign competition increased Blockbusters efficiency. Doing business in the international market allowed Blockbuster to improve the quality of their product in order to gain a competitive advantage. New market opportunities: International business presents firms with new market opportunities. These new markets provide more opportunities for expansion, growth, and income. A bigger market means more customers, increased revenue, a larger profit margin, and allows the business to realize economies of scale.

Diversification: As the firm diversifies its market, it becomes less vulnerable to changes in local demand. This reduces wild swings in a company's sales and profits. Disadvantages: Increased costs: There are increased operating expenses including the establishment of facilities abroad, the hiring of additional staff, traveling of personnel, specialized transport networks, information and communication technology. Foreign regulations and standards: The firm may need to conform to new standards. This may require changes such as in the production process, inputs and packaging, incurring additional costs. Delays in payments: International trade may cause delays in payments, adversely affecting the firm's cash flow. Complex organizational structure: International business usually requires changes to the firms operating structure. Training/retraining of management may be necessary to facilitate restructuring.

Q.3 Blockbusters earliest & primary foreign thrust was into the British market. Do you agree with this expansion theory?

Ans. Blockbuster entered British market in 1990 & by the end of 1991 had built fifteen stores. Blockbuster had good reason for entering British market & I agree with their expansion theory. They expanded because U.S. markets matured in the sell of V.C.R.

Blockbuster faced increased competition from rivals (example: pay-per-view movies)

One of the most important reasons that caused Blockbuster to expand was the growth of retail sales of video tapes for home use which paled the idea of movie rentals as customers could keep the movie.

More importantly sell through markets like K-mart could get sell-through tapes for $14 from distributors whereas Blockbuster bought rental tapes for $65. As a result many retailers competed against Blockbusters for tape sales rather than tape rentals.

By expanding to UK, Blockbuster took the 1st step to international business which is obviously a good step for any company & Blockbuster also tested out the country similarity theory through this.

By entering U.K. market, Blockbuster became more experienced & stronger in business through joint venture with in the absence of franchising.


by Blockbusters business in U.K. became

springboard for the companys expansion to France, Germany & Italy through jointventure.

Q.4 Blockbuster bought video store chains abroad that already had well-known names. Why should the company change these stores to Blockbuster stores?

Ans. Why should the company change these stores to Blockbuster stores because

For best customer recognition and brand power By converting to Blockbuster stores, the stores were later used as a springboard to expand to other countries via joint-venture.

By conversion, Blockbuster gained additional ecomoies of scale. For example: in Canada Blockbuster used this strategy to advertise themeself to Canadian people who are out pf cable range.

Blockbuster acquired a new brand beforeit started renaming brands. During the brand transition phase, at first Blockbuster kept the name of the acquired companys name and logo & later renamed it to Blockbuster as a part of redeveloping the online and advertising strategy.

The stores were converted to Blockbuster stores also because, Blockbuster was developing an acquisition message for stakeholders clients, employees, analysts, prospects, investors, and media. This message also addressed when the acquired brand would be retired and how business as usual would be handled.

A name change was necessary for employees of acquired comapny to get used to with new management.

A name change was necessary as Cityvision took a major economic hit just before Blockbuster video bought it. It is a common trait in business disastrous happen. to change names after something

Q.5 What factors other than those presented in the case might inhibit Blockbusters expansion into lower income countries?

Ans. Blockbusters expanded into lower income countries may be because

It wanted to be a market dominator in another country.

Poorer countries may have no rival at all, so Blockbuster maybe able to do monopoly style business.

Poorer countries have cheap factors of production which will save money.

Poorer countries have less restrictions & regulations for foreign investors, so gaining a new market will be a lot easier. Tax might have been low Blockbuster in the poor countries. Blockbuster might expand to poor countries for an additional source of money which can be used for further expansion or supporting business in home country. Blockbusters true intention maybe was to expand to other rich neighbouring countries around the poor country. The poor country can be used as a route to those countries as the

transportation cost will be low. The poor country could be used as a base.

Q.6 Why would many Cityvision stockholder sell for cash rather than Blockbuster stock?

Ans. Many Cityvision stockholder sell for cash rather than Blockbuster stock because In cash transaction acquiring shareholders take all the risk that the expected synergy value embedded in the acquisition premium will not materialize, where as when we deal is stock the risk is spread and shared with the acquired shareholders too.

In a cash deal it is pretty clear who is acquirer and who is acquired, when it comes to stocks and the stock value can change at any time. A really confident acquirer will tend to pay for the acquisition by cash and the markets historically have been rewarding this confidence by responding through rise in share value, a stock buy out could (almost certainly) take the opposite direction if they sense that the stock is overvalued. In about 75% of the cases, the stock value of acquirer has taken a dip soon after the deal is announced. The cash buyout also

makes sure that its shareholders do not give up any merger gains to the acquired companies shareholders.

The more sensitive the acquired companies compensation is to changes in acquirers stock, the less favorable the response from the market. There are many tools and frameworks that one can use to arrive at the SVAR (Shareholder value at risk) and then make a decision on the best mode. In conclusion I would say that this is not an easy decision , there are several macroeconomic factors that drive this and also this should come out as a result of your strategic due diligence done upfront. These need not be all cash or all stock, people thats why Blockbuster Video used a % of both, the deal structure and tax issues will drive a lot of this.

Q.1 Evaluate the different ways in which Bata has interacted with foreign political systems in its investments & operations abroad.

Ans. Bata's effective organizational structure and managing style: With activities in 60 countries, Canada-based Bata Shoe Organization has much operational experience both in developed countries and developing countries and can deal with different political systems. It has an effective organization structure, which consists of

o Bata Limited located in Toronto, Canada, acts as headquarters of the operating companies. Regional offices exist in Toronto, Mexico City, Singapore, Paris, Calcutta and Harare.

o The International structure: a decentralized organization, where operating companies are independent businesses, supported by a global management team.

o Private Ownership: Bata shoe organization companies have also entered into a number of joint ventures, retail franchising and brand licensing agreements. By and large Bata's operations are independent units established in each country where the firm does business. As such, Bata is able to decentralize control of its political strategy--giving subsidiaries significant autonomy in managing relations with their respective government. For example, although Bata prefers not to export production, in the countries where the governments does not like it only imports raw materials but does not export, Bata adjusts to the local laws. Since important issues will vary from country to country, Bata must allow subsidiaries to identify the appropriate issues (step one of political strategy formulation) themselves. The strategies that are formulated to deal with those issues are likely to be subsidiary specific as well .

Different ways interacting with different political and legal environment: Bata's presence in dozens of countries complicates its political strategy. For the company to succeed, its management must carefully

analyze whether its corporate policies will fit a desirable political and legal environment. According to the different governments' demand of organizational ownership, Bata opens the global possibilities through partnerships, licensing arrangements, consulting, technical assistance, franchising, or direct ownership and management of subsidiaries in different countries or even being nationalized . Bata has showed its ability to operate in countries with different political systems. Besides its successful investments in democratic countries that have more freedom such as the United Kingdom and the U.S.A., Austria, Bata also operates under the totalitarianism countries. Its manufacturing units' shifting to the communistic country---China, where the economy has changed to market-driven is a good example. And Bata realizes that the wisest way is to remain silent in some totalitarian countries. When its local operation in Uganda was nationalized and denationalized reiteratively, Bata continued to operate as nothing has happened . A mentionable issue is rebuilding the organization in Eastern European countries that have moved away from communism to various degree democracies. After the Second World War, communist dominated governments nationalized Bata's operations not only in the former Czechoslovakia, but also in Poland, Yugoslavia and East

Germany. But after that special period, Bata successfully proved to the Communists that they could rebuild organizations in the economic restructuring of countries that used to be behind the Iron Curtain. Take the investment in Czech republic for example, during the Second World War, Bata had to leave the former Czechoslovakia where its operations started because the political situation had worsened. After many years communists took power in Czechoslovakia and confiscated Bata. However, following the "velvet divorce" of the former Czechoslovakia, the Czech Republic rushed into a market economy with entrepreneurs being agents of social change. After negotiating with the government over conditions surrounding the organization's investment in Czech Republic, Bata successfully got the ownership of the company in Czech Republic again and operated profitably. Opposite to its reinvestment in Czech Republic mentioned above, Bata faced considerably more government intervention in Slovakia. There is likely to be more political instability in Slovakia and Slovakia does not have a very positive attitude toward foreign investment (despite Bata's roots in the region). Bata's battle for restitution in Slovakia courts may be a long and expensive process .

Q.2 Do you think Bata made the correct decision to pull out of south Africa? How do you think the political events in South Africa in the past few years might change Batas strategy for South Africa? How should Bata formulate a strategy for determining whether or not to reenter South Africa?


However, apart from its successful foreign investments in some countries, Bata should be also censured for critical operations under the authoritarian totalitarianism like Chile under Pinochet and South Africa during the apartheid period . Apartheid was a system of laws and measures designed to oppress the rights of blacks while maintaining white supremacy within the ranks of the government as well as society. African Black labors that lost their jobs would not simply join the ranks of the unemployed; they could lose their residential rights as well, and be removed from the urban labor market to the underdeveloped homelands. In the latter case, while some foreign companies and governments supported the political reforms such as the United States Congress involved itself in the South African on-goings by supporting the abolishment of the

apartheid, encouraging peace and establishing a democracy in South Africa, whereas Canada showed negative attitude. Canada's government issued very conservative voluntary guidelines on new investments in South Africa. And Bata fallaciously accorded with its home-government 'tacitly supporting the white minority political regime.' Finally, Bata gave up their investment in South Africa.

Q.3 What are the advantages & disadvantages to both Bata & the republic of Slovakia of having Bata take over his former operations? Why do you think the Czec Republic allowed Bata to re-enter the market, but Slovakia had no as of the end of 1995? Why do you think Bata is appealing for a political solution to his problems rather than go through the courts to get back his property? What type of political system do the Czec Republic & Slovakia have? How might that help explain Batas problem?

Ans. The advantages to Bata: Because it is a Czech-originated company, from a nostalgic point of view, Bata will be able to return to the home country. Besides this, there are other advantages: Access to Eastern Europe market Companies may undertake foreign direct investment (FDI) to expand foreign markets, to gain access to suppliers of resources or finished products, and to reduce their operation risks. By taking over the manufacturing operations in Czech Republic, Bata can gain access to large facilities and a huge market in Eastern Europe and the former Soviet Union where FDI from the developed market economies is

perceived as a key part of the reconstruction of the economies. Easy to control Wholly owning foreign operations assures the most extensive management control. The parent and subsidiary usually share a common corporate culture; Bata can use its own managers, who understand its objectives and the nature of the sometimes difficult-toteach processes that it wishes to transfer. The company can also avoid protracted negotiations with another cooperative company or even the Czech government and can avoid problems of enforcing an agreement. The control inherent in Bata may also lower the company's operations costs and increase its rate of technological transfer. Furthermore, it is beneficial to build the whole organization culture. Local production serving local market The prices of some products increase too much if they are exported. Therefore, foreign production is often necessary to tap foreign markets because it skirts import barriers and reduces transportation costs, so is Bata. By wholly owning the operations in Czech, Bata can use local production to serve local market instead of exporting shoes to Czech.

The disadvantages to Bata: The disadvantages to Bata are reflected as facing more risks, confronting more difficulties in cross-cultural management, and relatively higher capital requirement and start-up costs. Facing more investment risks Compared with other entry strategies, wholly owning subsidiary in Czech brings Bata more risks. After separating from the former Czechoslovakia, Infrastructure availability, insufficient openness to trade and instability politics of Czech Republic all have negative impact on the Bata's operations, even recently the Czech Republic has only removed controls on capital outflows. Besides these, hostility generating from host-country citizens and politicians also increase Bata's investment risksthere may be a tendency for people to be protectionist and to 'buy local'. Confronting more difficulties in cross-cultural management Although Bata was initiated in the former Czechoslovakia, after migrating Canada for more than fifty years, the organizational cooperative culture has merged with Canadian culture. The cultures of host country and home country are very different. So Bata has more

difficulties in dealing with the cross-cultural management. The advantages to Czech Republic: Bata's direct investment provides the Czech Republic with capital, technology, employment and managerial skills, and therefore accelerates its economic growth and development. Supplying Capital International companies like Bata, by virtue of their large size and financial strength, have access to financial resources not available to host-country firms. The Czech Republic might be able to get Bata to invest significant capital into the plant to get it up to world-class standards. Bringing product and process innovations Less developed nations lack the research and development resource and skills required to develop their own indigenous product and process technology. Such countries must rely on foreign direct investments for much of the manufacturing technologies and marketing expertise required to stimulate economic growth. Related to the case, by Bata taking over the operations, the Czech Republic can gain access to Bata's global design, advanced production technology,

and marketing expertise. They will be able to design better, more fashionable, and more reasonably priced shoes. Bringing managerial skills The Bata 's advanced managerial skills may also produce important benefits for the host country--Czech. Beneficial spin-off effects arise when local personnel who are trained to occupy managerial, financial, and technical posts in the Czech subsidiary. Similar benefits may arise if the superior management skills of Bata stimulate local suppliers, distributors, and competitors to improve their own management skills Creating new jobs Bata will create new jobs for Czech workers both directly and indirectly. Direct effects arise when Bata employs a number of hostcountry citizens. Indirect effects arise when jobs are created in its local suppliers and other support departments. Increasing competition Bata can help to increase the level of competition in the Czech markets by increasing the consumer choices of shoes. Increased competition can stimulate both Bata and its rivals to increase productivity, innovate product and process, and finally achieve the

greater economic growth.

The disadvantages to Czech Republic: While recognizing the benefits that Bata brings to the host countryCzech, it must be realized that the socio-economic impact of Bata is not always be positive. Bata also has potential dangers for Czech, as it may create problems for technological dependence, cultural change or even thwarting the passage of laws that constrain socially undesirable practice such as pollution regulation. However, there are more criticisms that focus on the disadvantages to the economy of Czech Republic, such as it may lead to the creation of monopolies in the shoe market of Czech; it may impact on the balance of payments of Czech and even on the ability of the government of Czech to manage the local economy. Take the adverse effort on competition for example, although we have just outlined in the previous section how Bata can boost competition, there is worry about the subsidiary of Bata may have greater economic power than the Czech indigenous competitors. It could drive indigenous companies out of business and monopolize the market. Once the market was monopolized, Bata could raise prices above those productions that would prevail in shoe markets, with harmful effects on the economic

welfare of the Czech Republic.

Bata reentered the Czech Republic and not Slovakia because the two countries have very different economic environments. The Czech Republic is moving more quickly than Slovakia toward a free market system.

Bata is appealing for a political solution to his problems rather than go through the courts because Slovakia is being run by Communists & there is no democracy. As in communism there is no right for personal property & everything belonged to the government, so Bata couldnt go to court to retrieve property. Thus Bata went for political solution.

Slovakia has Communism where one party rules the country & Czech Republic has Parliamentary government.

This helps in explaining Batas problem as we see that Bata was able to do business in Czech Republic because of political system but was not able to do business in Slovakia.

Q.4 Check the web for country pages, the CIA factbook, or other sources of information on South Africa, the Czech Republic, or Slovakia that will help you understand more about the changing political & economic climates in those countries.

Ans. Political & economic climate of Czech Republic: Czech Republic has a parliamentary government system. It has civil law system based on former Austro-Hungarian civil codes and socialist theory; note legislation is actively modernizing the legal system.

The Czech Republic is a stable and prosperous market economy, which harmonized its laws and regulations with those of the EU prior to its EU accession in 2004. While the conservative, inward looking Czech financial system has remained relative healthy, the small, open, export-driven Czech economy remains very sensitive to changes in the economic performance of its main export markets, especially Germany. When Western Europe and Germany fell into recession in late 2008, demand for Czech goods plunged, leading to double digit drops in industrial production and exports. As a result,

real GDP fell 4.1% in 2009, with most of the decline occurring during the first quarter. Real GDP, however, has slowly recovered with positive quarter-on-quarter growth starting in the second half of 2009 and continuing throughout 2010. The auto industry remains the largest single industry and, together with its suppliers, accounts for as much as 20% of Czech manufacturing. The Czech Republic produced more than a million cars for the first time in 2010, over 80% of which were exported. Foreign and domestic businesses alike voice concerns about corruption, especially in public procurement. Other long term challenges include dealing with a rapidly aging population, funding an unsustainable pension and health care system, and diversifying away from manufacturing and toward a more high-tech, services-based, knowledge economy.

Political & economic climate of Slovakia: Czech Republic used to have a Communist government system but now it has a parliamentary democratic system. It has civil law system based on Austro-Hungarian codes; note - legal code modified to comply with the obligations of Organization on Security and Cooperation in Europe and to expunge Marxist-Leninist legal system

Slovakia has made significant economic reforms since its separation from the Czech Republic in 1993. Reforms to the taxation, healthcare, pension, and social welfare systems helped Slovakia consolidate its budget and get on track to join the EU in 2004 and to adopt the euro in January 2009. Major privatizations are nearly complete, the banking sector is almost

entirely in foreign hands, and the government has helped facilitate a foreign investment boom with business friendly policies. Slovakia's economic growth exceeded expectations in 2001-08 despite a general European slowdown. Unemployment, at an unacceptable 18% in 2003-04, dropped to 7.7% in 2008 but remains the economy's Achilles heel. Foreign direct investment (FDI) accounted for much of the growth until 2008. Cheap and skilled labor, low taxes, a 19% flat tax for corporations and individuals, no dividend taxes, a relatively liberal labor code and a favorable geographical location are Slovakia's main advantages for foreign investors. Foreign investment in the automotive and electronic sectors has been especially strong. To maintain a stable operating environment for investors, the European Bank for Reconstruction and Development advised the Slovak government to refrain from intervening in important sectors of the economy. However, Bratislava's approach to mitigating the economic slowdown has included substantial government intervention and the option to nationalize strategic companies. RADICOVA's government, in power since July 2010, has allowed the budget deficit to rise slightly, to 7.9% of GDP in 2010. GDP fell nearly 5% in 2009 before gaining back 4% in 2010, and unemployment rose above 12% in 2010, as the global recession impacted many segments of the economy.

Q.5 Why do you think Tom Bata, Sr. has joined the list of entrepreneurs who cannot bear to loosen their grip on businesses they started? What is the risk to the Bata Shoe Organization if Thomas J. Bata cannot find a way to retire?

Ans. Having grown a business, it is often hard to turn it over to others who may have different ideas about how the firm should be managed. However, a mature, established business requires a different set of leadership and administrative skills than are needed by a young, growing firm. Thomas J. Bata led his firm through a period of great turbulence and growthbut both the world and the company are now very different than they were in the 40s, 50s, 60s, and 70s. The biggest danger facing Bata Shoes is the lack of a clear succession plan for the time when Thomas J. Bata either retires or dies. He needs to be laying the framework to provide as smooth a transition to another chief executive as possible. If a successor were being groomed the timing of Thomas J. Batas departure would not be as important, since there would already be someone in place making increasingly important decisions and ready to step in effectively when

the time came.