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InternationalBusiness:Cases


Case 1: Whirlpool
WhirlpoolsDramaticTurnaroundthroughInternationalization  Whirlpool exemplifies how internationalization can rejuvenate declining sales and optimize cost structures. Background  Headquartered in Benton Harbor, Michigan, Whirlpool Corporation makes washers, dryers, refrigerators, dishwashers, freezers, and microwave ovens in 13 countries and sells them in 170 others, under brands names such as Whirlpool, Maytag, Magic Chef, JennAir, Amana, KitchenAid, Kenmore, Brastemp, and Bauknecht.  In 2006, Whirlpool acquired competitor Maytag (horizontal integration) and its brands (Amana, JennAir, MagicChef,andMaytag).  Whirlpool generated over $19 billion in 2006 annual sales: 60 percent from North America, 25 percent fromEurope,15percentfromLatinAmerica,and2percentfromAsia. Operatewith60manufacturingandtechnologycentersworldwideand80,000employees. InternationalExpansion Domestically: (1) The U.S. appliance market matured in the 1990s, and Whirlpool faced low profit margins, intense competition, and more demanding buyers, pressuring management to consider international markets. Internationally: (1)Tradebarriersfell,consumeraffluencegrew,andcapitalismflourished. (2)Aglobalapproachwouldyieldeconomiesofscaleinmanufacturing, assembly,appliancetechnologyanddistribution. (3)WhirlpoolsoughtcostreductionsinR&D,manufacturing,andservices bylocatingplantsinlowercostlocationssuchasChina,Mexicoand Poland. StrategyGlobalexpansionWhirlpool: AcquiredtheappliancegiantPhilipsinEurope Bought65percentofItaliancoolingcompressormanufacturerAspera AcquiredcontrolofKelvinatorofIndia PurchasedPoland'ssecondlargestappliancemaker FormedajointventureinChinatoproduceairconditioners. Establishedacorporateheadquartersandproductdevelopment/technologycenterinShanghai OpenedregionalofficesinHongKong,NewDelhi,andSingapore AcquiredVitromatic,aformerjointventurepartnerinMexico  Developed lowcost versions of popular models to target customers in lowincome emerging markets suchasLatinAmerica,China,andIndia  Created subsidiaries to sell and service appliances in Bulgaria, Hungary, Romania, Russia, Slovakia, and theCzechRepublic Innovation  1999 Whirlpool launched a differentiation campaign to distinguish it from the other sea of white appliances.  A knowledge management intranet site yielded high potential, innovative ideas from the global workforce. Since2003revenuehasquadrupledannually. LocalPreferences CrossregionalR&Dteamscollaboratetoadaptinnovationstolocaldemands.

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 Whirlpool struggles to remain a worldclass player in a key industry, and continually faces new challenges.  For example, Haier, Chinas largest appliance maker, has captured 20% of the window air conditioningand50%ofthesmallrefrigeratormarkets.  The opportunities of emerging markets must be balanced with the threats of global rivals (from China andelsewhere)competingintheirhomemarket.  1. What is the nature of Whirlpools international business environment? What types of risk does the firmface? Environment:Complexandrisky AllFOURtypesofrisksininternationalbusiness: Crossculturalrisk Whirlpoolmanufacturersin13countriesandsellsin170others.  Differences in language, lifestyles, attitudes, customs, and religion, where a cultural miscommunication jeopardizesaculturallyvaluedmindsetorbehavior. Culturalblundershindertheeffectivenessofforeignmanagers. Languagecriticaldimensionofcultureawindowtopeoplesvalues Languagedifferencesimpedeeffectivecommunication. Culturaldifferencesmayleadtosuboptimalbusinessstrategies.  Countryrisk(alsoknownaspoliticalrisk) Differencesinhostcountrypolitical,legalandeconomicregimesmayadverselyimpactfirmprofitability.  Also, laws, regulations and indigenous factors e.g. property rights, intellectualproperty protection, product liability, taxation policies, inflation, national debt, and unbalanced international trade, may encumberfirmoperationsandperformance.  Government intervention: restricts market access; imposes bureaucratic procedures hindering business transactions;andlimitstheamountofearnedincomethatfirmsmayrepatriatefromforeignoperations.  Economic freedom differs among nations Hong Kong, Singapore and Ireland are known as having the highestlevelsofeconomicfreedom,see: (http://www.heritage.org).  Currencyorfinancialrisk  Risk of adverse exchange rate fluctuations, inflation and other harmful economic conditions create uncertaintyofreturns.  When currencies fluctuate significantly, the value of the firms assets, liabilities and/or operating income maybesubstantiallyreduced  Commercialrisk With Whirlpools global expansion, the following acquisition/ joint venture/ innovation strategies would be subjecttocommercialrisk: Poorformulation/implementationintermsofpartneringselections,marketentrytiming,pricing,product features,andpromotionalthemesresultincommercialrisk. Failuresininternationalmarketsarefarmorecostlythandomesticbusinessblunders. AcquisitionoftheappliancegiantPhilipsinEurope Bought65percentofItaliancoolingcompressormanufacturerAspera AcquiredcontrolofKelvinatorofIndia PurchasedPoland'ssecondlargestappliancemaker FormedajointventureinChinatoproduceairconditioners. Establishedacorporateheadquartersandproductdevelopment/technologycenterinShanghai OpenedregionalofficesinHongKong,NewDelhi,andSingapore AcquiredVitromatic,aformerjointventurepartnerinMexico  Developed lowcost versions of popular models to target customers in lowincome emerging markets suchasLatinAmerica,China,andIndia

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 Created subsidiaries to sell and service appliances in Bulgaria, Hungary, Romania, Russia, Slovakia, and theCzechRepublic  2. How can Whirlpool benefit from going international? What types of advantages can the firm obtain? What advantages acquired abroad can help management to improve Whirlpools performance in its homemarket?  Whirlpool has reduced its costs of R&D, manufacturing, and service by locating plants and other operationsinlowercostlocationssuchasChina,Mexico,andPoland.  Management integrated the activities of regional subsidiaries so that Whirlpools most advanced expertise in appliance technology, production, and distribution could be shared with the firms divisions worldwide.  Whirlpool is a leading exemplar of how internationalization revives declining sales and optimizes cost structures.Ithasdevelopedinternationalvaluechainsthatminimizeexpenses,leadingtohigherprofits.  3. What actions has Whirlpool management taken to ensure that the firm succeeds in local markets throughouttheworld?Towhatextentistheappliancebusinesslocal/regionalratherthanglobal? Whirlpoolhasthrivedthroughsensitivityandcommitmenttoconsumersindiverseculturalandeconomic settingsaroundtheworld.  As part of its innovation strategy, crossregional teams collaborate to adapt Whirlpool offerings to local markets.Examples  Spanishwantrefrigerationcapacityformeats.  Britishwantwellconstructedunits.  Frenchwantrefrigerationcapacityforfruits&vegetables.  Germanscareaboutenvironmentalfeatures  Danesspindryclothing. Italianslinedryclothingandcareaboutchildsafetyfeatures.  Indians(India)wantahighlevelofcleanliness,whiteness=purity. The appliance industry can leverage global efficiencies in terms of appliance technology, production, and distribution. However, tailoring appliances to the local markets is also important, as exemplified above. Thus,thisindustrydemandstheintegratedapproachglobalandlocal/regional.  4. How can Whirlpool effectively compete with new rivals originating from lowcost countries, such as HaierfromChina?ShouldWhirlpoolsresponsedifferinitshomeanditsforeignmarkets?Ifso,how?  Challenge Competing with Haier, China's largest kitchenappliance maker. Whirlpool may take the offensiveandcompeteevenmoreaggressivelyintheircompetitorsdomestic marketsand/orimplementa moredefensivestrategyintheirownhomemarket.Eitherway,innovationandmarketresearchwillbekey.  Whirlpools strategy of innovation and differentiation underscores their flexibility and focus on distinguishing their offerings by emphasizing innovative, high valueadded products. For instance, Whirlpooldevelopedmicrowaveovensthat cangrill steaks,bake pizzas,orslidesoutlikea drawerforeasy access.  Crossregional R&D teams collaborate on innovations to adapt offerings to the demands of diverse international environments. For example, in India, Whirlpool developed a washing machine that delivers a higherlevelofcleanlinessforconsumerswhobelievewhitenessofclothingexpressespurity.  Competition with lowcost rivals dictates a strong emphasis on innovation, thus with lowcost competitors,Whirlpoolmustseekoutprocurementandmanufacturingsourceswithglobaleconomies.  5. The Careers section at Whirlpools website (www.whirlpool.com) advertises opportunities you never knew existedeverywhere across the globe.. Visit the site and report on the types of jobs availableatWhirlpoolandthelocationsofthesepositionsworldwide.Whatpositionsinterestyoumost? WouldyouliketoworkinWhirlpoolsinternationaloperations?Whyorwhynot? Forthisquestion,thereisnorightorwronganswer(s). WhirlpoolCareerAreas: BrandMarketing

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Finance IT/IS HumanResources SupplyChain Legal Manufacturing Sales Engineering Procurement Design&UserExperiences  Whirlpool provides an opportunity to work for a Fortune 500 company with global operations. Internationally, you represent Whirlpool around the globe and impact the business of adding value to customerslives.  WhirlpoolSkills:  Passionate, consumercentric professionals who focus on results for the customer and shareholders. Bachelors or higher degree from an accredited university in their discipline, with a userfocused attitude andprogressiveview  Potential leaders who believe in continuously striving for excellence through strategic design and user centeredinitiatives  Leaders with integrity who drive change and deliver extraordinary results while always focusing on the customer. TheBottomLineatWhirlpool Whirlpool builds careers for individuals who want to be part of a progressive, growing company with a strong history and an eye firmly on the future. Utilize your skills in ways you never dreamed by joining the Whirlpoolteam.Checkoutopenpositionsatwww.whirlpool.com

 
Case2:Diverseperspectivesonglobalizationofmarkets  Summary  The interchange among the following three participants underscores the various issues pro and con embeddedinglobalization,andthecommensuratediverseviewsofmarketglobalizationthatanyoneofus mightembrace. Players: Activistanantiinternationalbusinessadvocate BusinessExecutivewithextensiveinternationaldealings TradeOfficialrepresentsthefederalgovernment  Activist Globalization:  Ignores human rights and employs substandard working conditions low wages and exploited workers. Resultsindomesticjoblosses.  Detrimentally affects on the natural environment, with increased international trade, the more irreparabletheharm,e.g.pollution,ecologicalimbalancesanddeteriorationoftheozone. Interfereswiththesovereigntyofnationalgovernments.  Impedes with government policies, e.g. when a firm like General Motors is a nations biggest company, as it is in Canada; it is more difficult for governments to manage policies regarding taxes, monetarypolicy,socialissues,andexchangerates.  Imposes Western cultural standards on the rest of the world, e.g. McDonalds everywhere. This effect isespeciallyprofoundin the MiddleEast,whereIslamicactivistsopposeMNEsdueto theimposition

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ofalienvaluesinsecularterms.Theyseethe U.S.asadominatingpowerthat usesglobalizationtoitsown advantage,harmingtheeconomic,cultural,andenvironmentalinterestsoftherestoftheworld. Limitsthebenefitsoftechnologiestothosewhocanaffordtoaccessit. Widensthegapbetweenrichandpoor,i.e.weakeningpoorcountries. Hampersinfantindustriesindevelopingeconomies.  BusinessExecutive Participantsintheglobaleconomy:  Provide betterpaying jobs, have more profits, pay higher taxes, and stimulate purchases from localsuppliers.  Create new jobs, enhance local living standards, and challenge firms to stay competitive in a challengingglobalmarketplace. Payhigherwagesandprovidebetterbenefitsthannonexportingfirms.  Need access to foreign markets in order to recoup their return on investment, especially firms heavilyinvestedinR&D,e.g.thoseinthepharmaceuticalindustry. Increaselivingstandardsworldwidethroughinternationaltrade  Argue that a good economy and a clean environment are not mutually exclusive. The more affluentpeopleare,themoretheywillcareabouttheirenvironmentandpasslawstoprotectit.  Recognize the importance of being good global citizens Motorola has profited from its business inChina,butithasalsocontributedtothedevelopmentofeducationalsystemsinthatcountry.BillGatesis going to do more than any government to get people computers and get them hooked up on the Internet. He has created the largest fund to combat malaria.  He and Warren Buffett are tackling Aids. GlaxoSmithKlineisworkingwiththeWorldHealthOrganizationtofindacureforElephantiasis.  TradeOfficial Freetradeisstronglyvaluedbythecurrentadministration,asarefreedomanddemocracy:  The President strongly supported NAFTA, and this already had a positive impact on the U.S. economy, increasing exports to Mexico, creating jobs for Americans, and leading to improved investment opportunities. CanadarecentlycompletedafreetradeagreementwithChile. Economictiesleadtoculturaltiesandmorepeacefulrelations. Advocatesnegotiatingtradeagreementsthattakeenvironmentalfactorsintoaccount. Globalizationiscomplexandtheprosandconsareintertwined. Sincethe1980s,globalizationhasincreased,andduringthisperiod,globalpovertyhasdeclined.  It is true that income disparities have increased dramatically over the last 50 years while internationaltradehasintegratedtheworldeconomy.  It is better to live in a world in which 20 percent of the people are affluent and 80 percent are poor,thanaworldinwhichnearly100percentofthepeoplearepoor,aswasthecasethroughoutmostof humanhistory. Theworldhasexperiencedagenerallyrisingtide.  Countries benefit from trade, but governments are responsible for protecting citizens from the negativeorunintendedconsequencesthatmayresultfromtrade.  SuggestedSolutionstoQuestions  1. Do you think globalization and MNE activity are creating problems for the world? What kinds of problemscanyouidentify?Aretheresomeunintendedconsequencesofinternationalbusiness?  As the Activist Argues that Globalization is Cultural Imperialism with severe consequences on nations, cultures,peopleandtheenvironment. Globalization:  Ignores human rights and employs substandard working conditions low wages and exploited workers.

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Resultsindomesticjoblosses.  Detrimentally affects on the natural environment, with increased international trade, the more irreparabletheharm,e.g.pollution,globalwarming,ecologicalimbalances,andhabitatdestruction. Interfereswiththesovereigntyofnationalgovernments.  Impedes with government policies, e.g. when a firm like General Motors is a nations biggest company, as it is in Canada; it is more difficult for governments to manage policies regarding taxes, monetarypolicy,socialissues,andexchangerates.  Imposes Western cultural standards on the rest of the world, e.g. McDonalds everywhere. This effect isespeciallyprofoundin the MiddleEast,whereIslamicactivistsopposeMNEsdueto theimposition ofalienvaluesinsecularterms.Theyseethe U.S.asadominatingpowerthat usesglobalizationtoitsown advantage,harmingtheeconomic,cultural,andenvironmentalinterestsoftherestoftheworld. Limitsthebenefitsoftechnologiestothosewhocanaffordtoaccessit. Widensthegapbetweenrichandpoor,i.e.weakeningpoorcountries. Hampersinfantindustriesindevelopingeconomies.  2.Summarizetheargumentsinfavorofglobalizationmadebythebusinessexecutive.Whatistheroleof technologyinsupportingcompanyperformanceinaglobalizingbusinessenvironment? Economic "globalization" refers to the increasing integration of economies around the world. It also refers to the movement of goods and services (international trade), people (labor), capital and knowledge (technology)acrossinternationalborders.  Proglobalizationarguments: Participantsintheglobaleconomy:  Provide betterpaying jobs, have more profits, pay higher taxes, and stimulate purchases from localsuppliers.  Create new jobs, enhance local living standards, and challenge firms to stay competitive in a challengingglobalmarketplace. Payhigherwagesandprovidebetterbenefitsthannonexportingfirms.  Need access to foreign markets in order to recoup their return on investment, especially firms heavilyinvestedinR&D,e.g.thoseinthepharmaceuticalindustry. Increaselivingstandardsworldwidethroughinternationaltrade.  Argue that a good economy and a clean environment are not mutually exclusive. The more affluentpeopleare,themoretheywillcareabouttheirenvironmentandpasslawstoprotectit.  Recognize the importance of being good global citizens Motorola has profited from its business inChina,butithasalsocontributedtothedevelopmentofeducationalsystemsinthatcountry.BillGatesis going to do more than any government to get people computers and get them hooked up on the Internet. He has created the largest fund to combat malaria. He and Warren Buffett are tackling Aids. SmithKline BeechamisworkingwiththeWorldHealthOrganizationtofindacureforElephantiasis.   Technology enables globalization: Technological advances in communications, information, manufacturing, and transportation have served as a remarkable facilitator of crossborder trade and investment.  The twin trends of globalization and technology transform national economies and promote outsourcing/offshoring. Informationtechnologyallowsformoreefficientadaptationtointernationalmarketsaswellasproducing smallerlotsizestotargetnichemarkets.  Among the industries most dependent on technological innovation are biotechnology, information technology, new materials, pharmaceuticals, robotics, medical equipment and devices, lasers and fiber optics, and various electronicsbased industries. ITaltersindustrystructure,changestherulesofcompetition,andcreatesnewwaystooutperformrivals, thusformingthebasisforcompetitiveadvantage. SmallerfirmscanleverageITtodesignandproducecustomizedproductsthatcanbetargetedtonarrow, crossnationalniches.

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TheimpactofITonourdailyliveshasbeenprofoundcellphones,Google,Yahoo,etc. ITsupportsstrategicdecisionssuchastheselectionofqualifiedforeignbusinesspartnersbasedonsound informationandintelligence.  3.Whataretherolesofstateandfederalgovernmentsindealingwithglobalization?Doyoubelievethat government has a responsibility to protect its citizens from the potential negative effects of foreign MNEs conducting business in their countries?  What kinds of government actions would you recommend?  To minimize globalizations harm and reap its benefits, governments should strive for an open and liberalizedeconomicregime: Freedomtoenterandcompeteinmarkets Protectionofpersonsandintellectualproperty Ruleoflaw Voluntaryexchangeimposedbymarketsratherthanthroughthe politicalprocess Regulationofcredit,laborandbusiness Transparencyoftheeconomicactorsincludingbusinessesand regulatoryagenciesisfundamentallycritical,e.g.SarbanesOxleyActof 2002 Advancedeconomiescanplayaroleinreducingpovertyby: x Makingtheirmarketsmoreaccessibletolowincomecountries; x Facilitatingtheflowsofdirectinvestment,otherprivatecapital,andtechnologyintolowincome countries;and x Providingdebtrelieftoheavilyindebtedpoorcountries.  The unintended consequences of globalization place greater responsibility on governments to ensure that the fruits of economic progress are shared equally, and all citizens have access to improved welfare, livingstandards,andhighervalueadding,higherpayingjobs.  4. What is the role of education in: addressing some of the problems raised in the previous discussion; creatingsocietiesin whichpeoplecandealeffectivelywith publicpolicyissues;creatingcitizenswhocan competeeffectivelyintheglobalmarketplace?  Education has a responsibility to cultivate individuals who will become productive members of societies where diverse views such as those expressed by the Activist, the Business Executive and the Trade Official representedinthiscaseareunderstoodandrespected.  The role of education is to be objective, to present all relevant perspectives and to endow individuals withaskillsetthatwillenablethemtoanalyze,synthesizeanddrawconclusionsbasedonfacts.Thismeans that a diverse and broad educational foundation is paramount for strong, global leaders. Part of this educationisanunderstandingofglobalfirmimperatives: 1.Configurethevaluechainglobally. 2.Collaboratewithforeignpartners. 3.Coordinateoperationsonaglobalscale. 4.Targetglobalmarkets. 5.Standardizeproducts,services,andbrands 6.Buildglobalcapabilitiesandaglobalorganization.   Case3:DHLInternational:AnAmbitiousCompetitorinGlobalLogisticsServices  Summary[Identifyingkeyissues]  In 1969, Adrian Dalsey, Larry Hillbolm, and Robert Lynn founded DHL as a doortodoor express service between San Francisco and Honolulu, no one could have imagined the business evolving into a crossborder expressdeliverygrouplinking120,000destinationsinmorethan220countriesandterritories.

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 With the German parent company, Deutsche Post World Net, DHL offers express services, international air andoceanfreight,contractlogistics,andvalueaddedservices.  While DHL is the market leader for courier express delivery in Europe and Asia, the brand struggled to developareputationforqualityserviceintheUnitedStates.  GlobalSupplyChainandLogisticsIndustry Fourtrendsareaffectingtheindustryglobalization,deregulation,digitization,andoutsourcing. DHLsInternationalization 1971DHLenteredtheinternationalexpressarenawithservicestothePhilippines. 1972DHLinitiatedservicestoJapan,HongKong,Singapore,andAustralia.  1980 DHL entered China through an agency agreement with Sinotrans that was later upgraded to a 50/50jointventurein1986,makingitthefirstinternationaljointventureexpresscompanyinChina. 1973DHLexpandedintoEuropewithlaterentryintheMiddleEastandAfrica. 1980sDHLwasthefirstcompanytoofferinternationalairexpressservicestoEasternEuropeancountries.  19851995DHL established hub operations in Brussels, Cincinnati, and Manila.  Strategically positioned facilities were located in Athens, Bombay, Hong Kong, Kuala Lumpur, Moscow, Osaka, Sydney, and Bahrain. DHLformedallianceswithJapanAirlines,Lufthansa,andtradingcompanyNisshoIwai.  2002 the Germanbased company Deutsche Post acquired 100 percent ownership of DHL for $2.7 billion (Deutsche Post AG, formerly owned and operated by the German government, became a publicly traded companyin2000).  Deutsche Post provides national and international services in four corporate divisions (mail, express, logistics,andfinancialservices)underthreebrandnamesDeutschePost,DHL,andPostbank.  Since 2002, Deutsche Post has focused on integrating its express delivery and logistics units, which includedEuroExpressandDanzas,undertheDHLumbrella.  DHL maintains five main brands: DHL Exel Supply Chain, DHL Express, DHL Freight, DHL Global Forwarding,andDHLGlobalMail. GlobalPositioning  DHL has a 35 percent share of the International Express segment in the Asia Pacific region, and is the marketleaderinJapanandChina. 2005acquisitionof81percentoftheIndianexpresscompanyBlueDartstrengthensDHLsabilitytooffer customersdomesticandinternationalexpressservicesinthekeyAsianmarketsofChinaandIndia. DHListhegloballeaderinairfreightaheadofNipponExpress.  DHLisable toofferairfreightin regionsnotserved by competitorsthrough itsinternalfreight carrier andair fleet.Itisalsotheleadingproviderofoceanfreightandcontractlogistics.  Client companies that have recently awarded contracts to DHL include Standard Chartered Bank, Deutsche Telekom,Philips,PepsiCo,Ford,BMW,SunMicrosystems,Unisys,andElectrolux. TheImportanceoftheU.S.MarketforDHL  An important strategic market for DHLNorth American express traffic accounts for nearly half the worldwidetotalwithhighlyattractivemargins,reachingUS$46.9billionin2004.  More than onethird of all global Fortune500 companies are headquartered in the United States where decisionsonlogisticsandtransportordersareincreasinglymade. ThecourierservicemarketintheU.S.ishighlycompetitiveandconsolidatedwiththetopfivecompanies inthemarketaccountingforabout47percentofthetotalmarketvalue.  The largest sector is ground courier service, accounting for 61 percent of sales, worth about US $30 billionwiththeU.S.PostalServiceasthelargestprovider.WiththeacquisitionofExel,DHListhemarket leaderoflogisticsintheUnitedStates. ChallengesintheU.S.Market DHLhasperformedwellintwoNAFTAmarkets: Canada,DHLpurchasedanationalbusinesstocomplementinternationalactivitiesandwereable toreachbreakevenwithinlessthantwoyears.  In Mexico, DHL is number one in the overall express and parcel market, with a strong market position.

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 In the U.S., DHLs goal is to be a strong number three in the market after UPS and FedEx, by focusing on thesmallandmediumsizedU.S.businessesthatareincreasinglyinvolvedincrossbordertrade. 2003$1.1billionacquisitionofAirborneExpress,thenation'sNo.3expressservice,isastrategicmovein thatdirection. Threatrisingfuelpriceshaveshiftedtheindustrytowardgroundtransport. DHL'slimitedgroundnetworkhashurtitsabilitytoattractdomesticcustomers.  North American infrastructure investments aimed at increasing ground delivery capacity by 60 percent andcosting$1.2billionresultedinlossesof$630millionin2004and$380millionin2005. DHLoperationschallenges:  Startup difficulties in opening a central air hub in Wilmington, Ohio, that led to delivery delays and lostcustomers.  2005 the company was responsible for losing a computer tape with personal information of 2 millionABNAMROresidentialmortgagecustomers. ABNlaterannouncedplans touseasecurecourier systembyFedExinwhich driversstaywith the computertapetheentiretime.  DHL regulatory challenges from FedEx and UPS, both of which have repeatedly contested Deutsche Post's operation in the United States by petitioning the U.S. Department of Transportation to cancel DHLs registrationasaforeignownedfreightforwarder.  UPS argued that Deutsche Post would use its monopoly profits to engage in predatory pricing in theUnitedStates.  FedEx and UPS also called for a formal enforcement investigation of DHL Airways citizenship alleging that foreign nationals, including Germanys postal system Deutsche Post, would control DHL Airways. Under the U.S. law, citizens of the United States must own at least 75 percent of the voting stock ofaU.S.airline,andU.S.citizensmustmanagetheoperations. Afteryearsofmotionsandhearings,regulatorsdeniedthepetitionsandruledinfavorofDHL.  The new marketing strategy (yellow and red logo) contributed to a onepercent rise in market share in the U.S., about $600 million in revenue.   SuggestedSolutionstoQuestions  1. DHL is integrating international express and logistic services. What valueadded services does DHL provide?Howdotheservicestieintoanorganizationsvaluechainactivities? DHL, as any logistics organization, makes globalization possible for the MNE, and especially the SME and born globals by enabling the international firm to outsource valuechain activities that are not core competencies. DHL is a transportation specialist that arranges for physical distribution and storage of products on behalf of focal firms, also controlling information between the point of origin and the point of consumption. DHL provides a costeffective means for delivering cargo virtually anywhere in the world, as well as providing distributor functions such as warehousing, inventory management, order tracking, and overall supply chain management services. Thus, instead of the focal firm performing these valuechain activities internally,DHLimplementsthemmoreefficiently  Canyouanticipatechangestothesupplychainthatwouldfurtheraltertheexpressandlogisticindustry?  Global demand appears headed towards more niche markets with consumer demanding specialized products/services. As such, the value chain and supply chain will both need to adapt by offering services thatcatertothesespecializedniches,yetatacostthatstillreflectstheirglobalefficiencies.  Also, SMEs comprise the majority of internationally active firms. They tend to emphasize exporting and leveragethehelpofintermediariesandfacilitatorstosucceedininternationalbusiness.Thistrendwillonly increase.  2.WhoarethetargetclientsforacompanylikeDHL?Whatfactorswouldinfluencethecustomertochoose anexpresscourierandlogisticsprovider?

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DHL targets MNEs and more specifically, the small and mediumsized U.S. businesses that are increasingly involvedincrossbordertrade.Thefactorsthatmaydrivefirmstooutsourcetoalogisticsproviderinclude: A]Costmoreefficienttooutsourcecertainpartsofafirmsvaluechain,especiallyforsmallercompanies. B] Core competencies firms are not superior on all primary and support activities. This is one of the main reasonsthatfirmsoutsource. C]Conveniencecargocanbedeliveredvirtuallyanywhereintheworld. D] Limited resources to compensate for their limited financial and human resources, SMEs leverage the servicesofintermediariesandfacilitatorstosucceedabroad. E] Distributor functions most firms are not vertically integrated, thus they hire an external supplier to be their distributorandperformwarehousing,inventorymanagement,ordertracking,andoverallsupplychain management services.  Let another firm own the ships, trucks, airplanes, and other transportation equipmentusedtotransportgoodsaroundtheworld.  3. Given the importance of the U.S. market to the global express industry, what would you recommend to DHL for changing its position in the United States? Do you feel that DHLs current strategies will be successful? MostpeopledontknowthatDHLwasinitiatedintheU.S.byAdrianDalsey,LarryHillbolm,andRobertLynnas a doortodoor express service between San Francisco and Honolulu. A marketing strategy that would underscore these origins and perhaps use the music from Back in the USA, as background, might refresh DHLsimageandpositiontheminamorepositivelight.  4. It appears that DHL needs to focus on improved customer satisfaction through better service quality and a more customerfriendly workforce. In this increasingly competitive industry, personalized service and investment in a trained sales force seems to be critical in attracting clients. Would customers in the UnitedStatesbewillingtoriskcriticalshippingactivitiestoafledglingoperation? DHLisfarfromfledgling! DHLoriginatedintheU.S.manyarenotawareofthisfact.Americansliketobet ontheunderdog!  WillpatiencerunoutfortheparentcompanyDeutschePost? Asubjectiveresponseiscalledforhere,soanyjustifiableanswerisacceptable. When Deutsche Post acquired 100 percent ownership of DHL for $2.7 billion in 2002, top strategic leaders musthaveemployedduediligencepriortotheacquisition,anddecidedthatthepotentialsynergies,increased market share, and access to certain growth markets would be profitable. As this is a strategic decision, which meanslongterm,perhapsthefewyearssince2002aresimplynotenoughtolosepatienceanddivestDHL.   Case4:Hyundai:thestruggleforinternationalsuccess Summary SouthKorea'snumberonecarmaker,HyundaiMotorCompany(HMC)producesaboutadozenmodelsof carsandminivans,aswellastrucks,buses,andothercommercialvehicles.  TheGlobalAutomobileIndustry  The automotive industry has been suffering from excess production capacity (production capacity at 80 million cars globally, with global demand at only 60 million) coupled with many competitors battling for market share, carmakers such as Toyota, Nissan, Honda, Hyundai, General Motors, Ford, DaimlerChrysler, Renault,andVolkswagenoperateonthinmargins.  Industry Characteristics: Capitalintensive with numerous mergers and acquisitions in recent years Ford and Land Rover, Jaguar and Volvo, Ford and Jaguar and DaimlerBenz with Chrysler (Daimler divested Chrysler).  SouthKoreaandtheAutoIndustry DemandinSouthKoreaistoolowtosustainindigenousautomakerslikeHMCandKia,thusexportingisa necessitytoattaintheeconomiesofscaleneededtoremaincompetitiveinatoughindustry.

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 South Korea enjoys various national competitive advantages in the provision of cars: abundance of productionfactorsincosteffectivelabor,knowledgeworkers,hightechnology,andcapital. TheSouthKoreangovernmentdevisedapartnershipsystemofclosegovernment/businessties,including directedcredit,importrestrictions,andsponsorshipofspecificindustries.  In part due to these efforts, Korea is home to a substantial industrial cluster for the production of cars andcarparts.GyeonggiProvinceisrapidlyemergingasthecenterofKorea'sautopartsindustry.  HMCsChallenges TheSouthKoreaneconomyenduredarecessioninthelate1990sasaresultoftheAsianfinancialcrisis.  The economy comprises numerous familyowned conglomerates, or chaebol. The combined sales of the nations five major chaebol Hyundai, Samsung, Daewoo, LG, and SK  account for roughly 40 percent of SouthKoreasGDPandtotalexports.  Kia Motors, South Koreas third largest maker went bankrupt and Daewoo was sold off to General Motors. In1998,HMCtookcontrolofKia,becomingSouthKoreasbiggestcarmakerandsustainedthreequarters ofitsdomesticvehiclemarketwhilesurpassingJapansMitsubishiandSuzukiinworldranking.    EarlyInternationalizationEfforts HMCwasfoundedin1967byChungJuYung,avisionaryentrepreneurfromapeasantbackground. Mr.Chungpassedonhisnevergiveupvaluestohisson,ChungMongKoo,whotookoverasChairmanin 1998.  First International Venture Unsuccessful  1983 HMC started its Canadian operation, but proved unprofitableandafterfouryearswasshutdown. HMCbeganexportingtotheU.S.marketwiththeExcelata$4,995pricetag.  UltimatelySuccessful Inresponsetocomplaintsaboutproductquality,HMCintroduceda10yearwarrantyprogram.  HMC built a factory in Turkey in 1997, in India in 2000, (with a second plant in 2007), and in China in 2002mainadvantagesoftheselocationsistheavailabilityofinexpensive,highqualitylaborandproximity totheMiddleEastandWesternEurope.  In 2006, HMC had more than ten production plants in Taiwan, Vietnam, Iran, Sudan, Venezuela, and in theU.S.(AlabamaMay2005).  To gain a competitive edge, HMC must not only seek out inexpensive labor, it must also source from locationsthatcansupplylowcostinputgoods(suchasengines,tires,andcarelectronics).  To control the manufacturing and marketing of its cars around the world, HMC has internalized much of itsinternationaloperations.  The costeffectiveness of suppliers is a matter of lifeanddeath in the global automotive industry. HMC has entered various collaborative ventures with partners to cooperate in R&D, manufacturing, design, and othervalueaddingactivities.  RecentEvents  Currently, the firm generates about a third of its sales from North America and 10 percent from Europe. Thefirmsprofitmarginsareamongthehighestintheindustry,worldwide.  HMC invests heavily in various valuechain activities and uses FDI to develop key operations around the world. HMCisdevelopingenvironmentallyfriendlytechnologiesthatemphasizefuelefficiency.  To capture 20 percent of the Chinese market, HMC has signed a $1.24 billion joint venture with GuangzhouMotorGroup.  RecentChallenges

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 In 2004, South Korea indicted Hyundai CEO Kim DongJin on charges that he violated campaign finance lawsandengagedinmanagerialnegligence. In2007,thegovernmentfinedHMC$25millionforallegedunfairmarketpractices. ChungMongKooreceivedathreeyearjailtermforembezzlingtheequivalentofmorethan$100million incompanyfunds. TheseeventsdamagedHMCsreputationwithstakeholderssuppliers,dealers,andcustomers.  Unfavorable currency exchange rates caused net profit to fall by 35 percent.  Sales in HMCs domestic andforeignmarketshaveflattened,andthefirmisgrapplingwithlaborunions. TopmanagementhasbeenstrugglingtomaintainHMCsgreatpromise.  SuggestedSolutionstoQuestions  1. In the intensely competitive global automotive industry, what factors provide comparative advantage to nations? Give some examples of natural advantages and acquired advantages that nations possess in thisindustry.  Comparative Advantage: (Country advantage) The relative efficiency with which a country can produce a particularproductorservice,comparedtoothercountries. Examples: SaudiArabiaoil Brazilcoffee Australiawool UnitedKingdomfinancialservices  Automotive industry: source from locations that can supply lowcost input goods (such as engines,tires,carelectronics).  Natural Advantages: fertile land, abundant minerals, and favorable climate were the initial areas of focus forcomparativeadvantage. Examples: SouthAfricahasextensivenaturaldepositsofminerals,itproducesandexportsdiamonds. Canadahasmuchagriculturallandandsuitableclimate,itproducesandexportswheat.  Automotiveindustry:sourcefromcountrieswithabundanceoffactorinputs,e.g.steel.  AcquiredAdvantages: Overtime,ithasbecomeclearthatcountriescanalsocreateoracquirenew,comparativeadvantages,or suchadvantagesemergeovertime. Eachnationsbundleofadvantagesevolvesovertime. Examples  Japan originally built an automotive industry at home, but had to seek lower cost production factorsinSoutheastAsiannations,Mexico,andBrazil.  Germany had to relocate much of its mass manufacturing to Eastern Europe, to secure lower productioncosts.  HMC built a factory in Turkey in 1997, in India in 2000, (with second plant in 2007), and in China in 2002 main advantages of these locations is the availability of inexpensive, highquality labor and proximitytotheMiddleEastandWesternEurope.  Nationsattempttoovercometheirinefficienciesrelativetoothercountries,viamodernization,reduction ofexcesscapacity,training,andupgradinghumanresourceskills.  2. Thinking in terms of factor proportions theory, what production factors are most important in the automotive industry?  Based on your answer, what countries would appear to possess the most advantagesformanufacturingcars?Justifyyouranswer. 

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AccordingtotheFactorProportionsTheory,eachcountryshouldexportproductsthatconcentrateonits relativelyabundantfactorsofproduction,andimportgoodsthatconcentrateonitsrelativelyscarcefactors ofproduction.  Factors of Production: resources used in the production of goods and services, including natural resources,labor,capital,andtechnology.  To gain a competitive edge, HMC must not only seek out inexpensive labor, it must also source from locationsthatcansupplylowcostinputgoods(suchasengines,tires,andcarelectronics).  3. As a nation, what competitive advantages does South Korea offer to homegrown automakers such as HMC? What are the specific national competitive advantages that have helped HMC succeed in the global carindustry?   Competitive advantage An individual company has a competitive advantage when it possesses one or more sources of distinctive competence relative to others, allowing it to perform better than its competitors.  Instead of FDI as in Canada, HMC began exporting to the U.S. market with the Excel as an economical brandata$4,995pricetag.Thecarwassoonabigsuccesswithexportsrisingto250,000unitsperyear. HMCintroduceda10yearwarrantyprogram. HMCbuiltafactoryinTurkeyin1997,inIndiain2000,(withsecondplantin2007),andinChinain2002 mainadvantagesoftheselocationsistheavailabilityofinexpensive,highqualitylaborandproximitytothe MiddleEastandWesternEurope.  Automotive industry labor costs make up only 10 percent of total operational costs.  To gain a competitive edge, therefore, HMC must not only seek out cheap labor, it must also source from locations thatcansupplylowcostinputgoods(suchasengines,tires,carelectronics).  HMC invests heavily in various valuechain activities and uses FDI to develop key operations around the world. Management chooses foreign locations based on the advantages they can bring to the firms global business.R&Distargetedtodevelopingsafer,moreconvenientautomobilesofsuperiorquality.  HMC is developing environmentallyfriendly technologies that emphasize fuel efficiency. HMC conducts marketresearchtohelpwithchoosingdesigns,aswellasinteriorandexteriorstylingofitscars.  4. Discuss HMC and its position in the global automotive industry in the context of Porters diamond model. That is, in regards to HMCs international progress, what is the role of: firm strategy, structure, andrivalry;factorconditions;demandconditions;andrelatedandsupportingindustries?  a. Firm strategy, structure, and rivalry refer to the nature of domestic rivalry, and conditions in a nation that determine how companies are created, organized, and managed. The presence of strong competitors inanationhelpscreateandmaintainnationalcompetitiveadvantage. HMC  With many competitors battling for market share, carmakers such as Toyota, Nissan, Honda, Hyundai, General Motors, Ford, DaimlerChrysler, Renault, and Volkswagen operate on relatively thin margins. The automotive industry has been suffering from excess production capacity. Although there is a capacity to produce 80 million cars globally, total global demand runs at only about 60 million a year.  Thus, car manufacturerstypicallyemployonly7580percentoftheirproductioncapacity.   Industry Characteristics: Capitalintensive with numerous mergers and acquisitions in recent years Ford and Land Rover, Jaguar and Volvo, Ford and Jaguar and DaimlerBenz with Chrysler (Daimler preparing to divestChrysler).   Their 10year warranty strategy was a major turning point for Hyundai, and they set about designing andbuildingcarsbasedonmuchhigherqualitystandards.Whilestillmaintaininglowprices,HMCwasable toprovidesubstantialextravaluetoconsumers. 

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GeographicdiversificationHMCbuiltafactoryinTurkeyin1997,inIndiain2000,(withasecondplantin 2007), and in China in 2002 main advantages of these locations is the availability of inexpensive, high qualitylaborandproximitytotheMiddleEastandWesternEurope.  b. Factor conditions describe the nations position in factors of production, such as labor, natural resources, capital, technology and knowhow. Consistent with the Factor Proportions Theory, every nation has more of certain factor endowments and less of others  a situation that determines the nature of nationalcompetitiveadvantage.  By investing in Kia, HMC gained access to the firms competitive advantages in R&D and production. During its lifetime, Kia had managed to acquire a substantial base of highly knowledgeable workers, engineers, and design staff.  Together, the two firms created synergies and economies of scale in R&D, engineering, purchasing, quality control, and marketing.  HMC also invested in R&D centers in North America,Japan,andEurope.  To gain a competitive edge, HMC must not only seek out cheap labor, it must also source from locations thatcansupplylowcostinputgoods(suchasengines,tires,carelectronics).  HMC invests heavily in various valuechain activities and uses FDI to develop key operations around the world.  Management chooses foreign locations based on the advantages they can bring to the firms global business.  R&D is targeted to developing safer, more convenient automobiles of superior quality. HMC is developing environmentallyfriendly technologies that emphasize fuel efficiency. HMC conducts marketresearchtohelpwithchoosingdesigns,aswellasinteriorandexteriorstylingofitscars.  c. Demand conditions refer to the nature of homemarket demand for specific products and services. The strength and sophistication of buyer demand facilitates the development of competitive advantages in particularindustries.  DomesticdemandinSouthKoreaissometwomillionvehicles;totalproductivecapacityhadreachedfive million.Exportingwasanecessity. Late1970sHMCbegananaggressiveefforttodevelopengineeringcapabilitiesandnewdesigns.  Instead of FDI (as in Canada), HMC began exporting to the U.S. market with the Excel as an economical brandwitha$4,995pricetag.Thecarwassoonabigsuccesswithexportsrisingto250,000unitsperyear.  HMC produces about a dozen models of cars and minivans, as well as trucks, buses, and other commercialvehicles.PopularexportedmodelsaretheAccent,Elantra,andSonata.  d. Related and supporting industries refer to the presence of clusters of suppliers, competitors, and complementary firms that excel in particular industries. Operating within a mass of related and supporting industries provides advantages through information and knowledge synergies, economies of scale and scope,andaccesstoappropriateorsuperiorinputs.  The economy comprises numerous familyowned conglomerates, or chaebol. The combined sales of the nations five major chaebol Hyundai, Samsung, Daewoo, LG, and SK  account for roughly 40 percent of SouthKoreasGDPandtotalexports.  The costeffectiveness of suppliers is a lifeanddeath matter in the global automotive industry. HMC is cooperating with DaimlerChrysler to develop new technologies and improve supply chain management. Projectsincludeanewfourcylinderengineandajointpurchasingplan.  5.DiscussHMCanditspositionintheglobalautomotiveindustryintermsoftheeclecticparadigm.That is, for HMC, what is the role played by: ownershipspecific advantages; locationspecific advantages; and internalizationadvantages?   a.ownershipspecificadvantages(firmspecificadvantages) R&DByinvestinginKia,HMCgainedaccesstothefirmscompetitiveadvantagesinR&Dandproduction. During its lifetime, Kia had managed to acquire a substantial base of highly knowledgeable workers, engineers, and design staff.  Together, the two firms created synergies and economies of scale in R&D,

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