Hill 7e End of Part Case Notes
Part One: Globalization
There are no Part One cases.
Part Two: National Differences in Political Economy; Differences
in Culture; Ethics in International Business
Nike: The Sweatshop Debate
1. Should Nike be held responsible for working conditions in foreign factories that it does
not own, but where subcontractors make products for Nike?
Answer: Most students will probably agree that Nike should be held responsible for the
working conditions in foreign factories where subcontractors make products the company
sells. Students taking this perspective are likely to argue that since the workers are there
to produce the products for Nike, the fact that the company does not actually own the
facilities is immaterial – Nike is the beneficiary of the work done in the factory. Some
students may suggest that Nike be resolved of some responsibility if the factories also
produce products for other companies.
2. What labor standards regarding safety, working conditions, overtime, and the like,
should Nike hold foreign factories to: those prevailing in that country or those prevailing
in the United States?
Answer: The question of whether of whether to hold foreign factories to the same
standards as domestic factories is difficult. Some students might argue that Nike should
require all factories regardless of their location to maintain the same standards when it
comes to working conditions, overtime, and so on. Other students however, may suggest
that it would be completely out of line to pay workers the same wages around the world,
or require factories to follow expensive safety procedures. Students taking this
perspective might argue that doing so could push some factories out of business and leave
workers in an even less desirable state. Some students might also argue that if working
conditions, wages, and so forth are standardized around the world, there will be little
incentive for companies to outsource production, and countries like Indonesia will suffer.
Still other students may suggest that some middle ground be found, where wages are in
line or slightly above local wages, and some basic safety procedures are required.
Students advocating this approach might suggest that Nike invest in the factories to
ensure that working conditions are safe.
3. In Indonesia, an income of $2.28 a day, the base pay of Nike factory workers, is double
the daily income of about half the working population. Half of all adults in Indonesia are
farmers, who receive less than $1 a day. Given these national standards, is it appropriate
to criticize Nike for the low pay rates of its subcontractors in Indonesia?
Answer: Students will probably be divided on this issue. Some students will probably
point to Nike’s huge profits and argue that those profits come at the expense of workers
in Indonesia who are barely making enough to live on. Other students however, might
say that by paying workers double the daily income of many Indonesian workers, Nike is
going beyond the average company. Some students may suggest that Nike do a better job
of “sharing the wealth” and require its subcontractors to pay workers more. Students
taking this approach may suggest that by requiring subcontractors to pay more, Nike
could actually create greater loyalty among workers, which could ultimately improve
productivity.
4. Could Nike have handled the negative publicity over sweatshops better? What might it
have done differently, not just from a public relations perspective but also from a policy
perspective?
Answer: When the allegations against Nike initially emerged, the company moved
quickly to publicly address them, and implemented various policy changes and
monitoring programs. These efforts, while a step in the right direction, have also been
criticized. Some students may suggest that Nike’s monitoring system is too formalized,
and that surprise visits to factories with a team of interpreters might be an effective
method of ensuring that subcontractors are following the policies Nike has established.
Nike has also been criticized for not finding out what is really going on at its
subcontractors’ facilities. Some students may also suggest that Nike require an “open
door” policy of its subcontractors where workers could be interviewed at any time.
Students may also suggest that Nike’s apparent dislike for the United Students Against
Sweatshops group amounts to a tacit admission of guilt. Given the importance of
collegiate licensing to Nike, students may suggest that the company make an effort to
work with the groups and demonstrate that conditions in foreign factories are as they
should be.
5. Do you think Nike needs to make any changes to its current policy? If so what?
Should Nike make changes even if they hinder the ability of the company to compete in
the marketplace?
Answer: Nike is between a rock and a hard place. On the one hand, the company needs
to respond to allegations that its subcontractors are requiring employees to work in
inferior and possibly dangerous conditions for low pay. On the other hand, if the
company forces its subcontractors to improve working conditions and pay workers more,
the subcontractors are likely to pass along the costs of the changes to Nike. Most
students will probably agree however, that given the intense public scrutiny of the
company, that Nike has little choice but to ensure that its subcontractors are meeting the
basic levels of safety and wages, even if it means lower profits for the company.
6. Is the WRC right to argue that the FLA is a tool of industry?
Answer: The Fair Labor Association (FLA) is an independent monitoring association
comprised of universities, companies like Nike and Reebok, the National Council of
Churches, the International Labor Rights Fund, the Lawyers Committee for Human
Rights, and others. The Workers Rights Consortium (WRC) is another independent
auditing consortium backed by labor unions that was established by the United Students
Against Sweatshops group. Many students will probably agree that the charge by the
WRC that the FLA is merely a tool of industry is probably posturing on the part of the
WRC. Students taking this perspective may point out that the FLA has a number of nonindustry members that could have different agendas than those shared by companies.
Other students however, may note that the WRC has been successful at persuading
several universities to join its cause which gives some credence to the charges that the
FLA may not be everything it claims to be.
7. If sweatshops are a global problem, what might be a global solution to this problem?
Answer: Nike, perhaps because of its size and popularity, has been a popular target of
protestors against poor working conditions. Nike has been forced to respond to
allegations that its subcontractors failed to provide adequate working conditions and
wages to workers. However, while Nike’s suppliers may have cleaned up their act, there
are many other companies that are not under scrutiny that are also paying low wages and
providing poor working conditions. Most students will probably agree that it would be
nearly impossible to inspect every factory in every developing country. Instead, they
may suggest that the companies that contract with these suppliers must bear the
responsibility for ensuring that suppliers are providing proper safety and working
conditions, and paying workers appropriate wages. Students may also suggest that to
limit the use of sweatshops, consumers be more aware of the problem and demand
appropriate corporate behavior. Some students may suggest that further efforts be made
to create an international organization with the authority to require companies to provide
proper working conditions and wages.
Etch-a-Sketch Ethics
1. Was it ethical of the Ohio Art Company to move production to China? What were the
economic and social costs and benefits of this decision? What would have happened if
production had not been moved?
Answer: This is a judgment call that hinges on what the social responsibility of business
is. The decision allowed Ohio Art Company to stay in business. At the same time, the
decision had serious negative social cost implications on the locations to which the
production moved and from which it moved. The model, though, is the same one Nike
follows, and that seems to have been accepted. Some students might argue that Ohio Art
Company has a moral responsibility to ensure that labor conditions are acceptable to its
consumers.
2. Assuming that the description of working conditions given in The New York Times is
correct, is it ethical for the Ohio Art Company to continue using Kin Ki to manufacture
Etch-A-Sketch toys?
Answer: Again, students will probably be divided in the question. Legally, the
enforcement of Chinese labor law in Shenzen Province is up to the officials of that
province. Law is not ethics, though. Some students may argue that if the work conditions
meet local norms and that the workers willingly contract to work under such conditions,
then Ogio Art Company is in the clear. Presumably, the workers find it acceptable to
work at Kin Ki. Other students, though, may suggest that a minimal level of human
dignity should be observed and that these labor conditions come close to violating that
dignity. The Ohio Art Company needs to decide how important it is to have its product
produced according to its own ethical standards.
3. Is it possible, as Mr. Killgallon claims, that the Ohio Art Company had no knowledge
of labor problems at Kin Ki? Do you think company executives had any knowledge of
the working conditions?
Answer: Some students may suggest that it is indeed possible that Mr. Killgallon knew
nothing of the labor conditions at Kin Ki. It appears that Ohio Art Company simply
extended its existing contract with Kin Ki to include production of additional products.
While some students may suggest that the company was negligent for simply believing
Kin Ki’s claims of providing decent working conditions and wages, it is not clear that an
on-site visit that would have given them a real sense of the labor situation. Getting
accurate information on these issues may be difficult for a foreigner.
4. What steps can executives at the Ohio Art Company take to make sure they do not find
the company profiled in The New York Times again as an enterprise that benefits from
sweatshop labor?
Answer: Most students will probably suggest that Ohio Art Company monitor its
subcontractor through unannounced visits and pull parts of the contract if conformance is
not found. In addition, some students may suggest the Ohio Art Company join forces
with external organizations that could validate its decision. For example, membership in
an organization such as a Chinese-American chamber of commerce may be able to
provide information on local company practices. Ties to human rights organizations that
could monitor the supplier as well may be helpful too – though this could create more
headaches for Ohio Art Company.
Western Drug Companies and the AIDS Epidemic in South Africa
1. Why is it so important for the drug companies to protect their patents?
Answer: Patents are important because they ensure that the drug company has an
inimitable resource, at least for the duration of the patent. This protects the firm’s
competitive advantage derived from its R&D activities. Without patent protection, the
drug could be reverse-engineered and copied in all markets. The impact of this would be
that the companies would not recover their steep development costs. This would reduce
innovation in the sector.
2. What should the policy of drug companies be towards the pricing of patent protected
drugs for AIDS in poor developing nations such as South Africa?
Answer: This is a judgment call that requires reasoning from an ethical base. Students
may raise additional questions such as whether maximizing the return to the investor is
the sole purpose of the corporation. Some students may note that it is important to
consider the potential for parallel exports. If the pharmaceuticals are sold to South Africa
at cost, what happens if they are then illegally exported to other countries for profit?
3. What should the policy be in developed nations? Is it ethical to charge a high price for
drugs that treat a life threatening condition, such as AIDS?
Answer: This question is likely to generate significant debate among students, and again
may raise more questions then it answers. Some issues to consider include whether
market should determine prices particularly if the national economy in question is well
developed? Should the government be involved in pricing pharmaceutical products? Is
access to cheap pharmaceuticals a human rights issue? What is the primary purpose of
the corporation – maximizing returns for investors or responding to social needs?
4. In retrospect, could the large Western pharmaceuticals have responded differently to
the 1997 South African law? How might they have better take the initiative?
Answer: Western pharmaceutical understood the issue initially from an economic
profitability viewpoint, while the government understood it from an ethical and social
point of view as well as a local affordability point of view. Underlying this divergence is
a basic question about the purpose of the firm: is it to make returns for shareholders or
does it have fundamental, larger social responsibility? One answer is that the Western
pharmaceuticals could have formed a coalition to support the dissemination of AIDS
drugs and AIDS education at a shared cost, possibly subsidized by consumers in the
West.
5. Is AIDS a special case, or should large drugs companies make it normal practice to
price low or give away patent protected medicines to those who cannot afford them in
poor nations?
Answer: Again, this is a judgment call connected to the understanding of the purpose and
responsibility of business. The issue of inherent inequality combined with respect for
human life makes this a difficult issue for many. Perhaps there are ethical ways that
people in poor countries can participate in drug trials and contribute in other ways to the
development of pharmaceuticals to off-set subsidized drugs. Perhaps, the drug
companies should assess participating in local production, an activity that might lower
costs.
Matsushita and Japan’s Changing Culture
1. What were the triggers of cultural change in Japan during the 1990s? How is cultural
change starting to affect traditional values in Japan?
Answer: During the 1990s, Japan’s economy began to slow. The prolonged economic
slump forced many Japanese companies to abandon their traditional ways of doing
business like lifetime employment. This caused younger people just entering the
workforce to question whether the loyalty that workers had traditional given companies,
and that had been traditionally reciprocated, made sense. Many younger people
concluded that it no longer made sense to be tied to a single company, that instead it
could be beneficial to take advantage of new opportunities when and where they arose.
2. How might Japan’s changing culture influence the way Japanese businesses operate in
the future? What are the potential implications of such changes for the Japanese
economy?
Answer: Many students will probably agree that the loyalty that had been a mainstay of
post-World War II corporate Japan is a thing of the past. Companies can no longer count
on employees to blindly work for the greater good of the company. Many students may
also note that the group identification that was associated with that loyalty is also a thing
of a bygone era, and that employees today are more likely to look out for themselves first,
and the company second. For companies, this means shifting to incentive programs
designed to promote individual performance rather than group performance. Some
students may suggest that the company housing and other benefits that were part of the
traditional post-World War II Japanese company will probably change to reflect these
differences.
3. How did traditional Japanese culture benefit Matsushita during the period from the
1950s to the 1980s? Did traditional values become more of a liability during the 1990s
and early 2000s? How so?
Answer: Traditional Japanese culture was important to Matsushita’s success from the
1950s to the 1980s. Group identification, reciprocal obligations, and loyalty to the
company meant that Matsushita took care of its employees from the “cradle to the grave.”
Employees worked for the greater good of Matsushita and in return, Matsushita bestowed
its “blessings” on its employees. These traditional values became a liability during the
1990s and early 2000s, when, after several years of poor performance, Matsushita began
to change. Many other companies had already shifted away from the traditional business
model to a model with a greater emphasis on individual performance.
4. What is Matsushita trying to achieve with human resource changes it has announced?
What are the impediments to successfully implementing these changes? What are the
implications for Matsushita if (a) the changes are made quickly or (b) it takes years or
even decades to fully implement the changes?
Answer: Most students will probably conclude that Matsushita’s changes to its human
resource policy are an effort to essentially keep pace with the modern workplace.
However, while individual performance now takes precedence over seniority for
compensation, the company is implementing its changes slowly. Matsushita has
designed a three-tiered employment option that includes a choice of subsidized company
housing and a retirement bonus, or a higher salary and no subsidized services, or some
combination of these. Many students may suggest that the changes are not particularly
popular. Just 3 percent of new recruits chose the higher salary and no benefits option,
while over 40 percent took the combination package. This trend may become
problematic for Matsushita which is now dealing with an aging workforce.
5. Why do you think Matsushita reorganized itself into stand-alone worldwide business
divisions?
Answer: Matsushita reorganized itself in 2002. Because it was very difficult to establish
performance accountability under its outdated organizational structure, the company
shifted to a structure that established 17 stand-alone worldwide divisions that focus
specifically on certain product sectors. By making these changes, the company hopes to
be better positioned to exploit growth opportunities. So far, the changes seem to be
successful. After recording significant losses in 2002, Matsushita broke even in 2003,
and began to generate profits in 2004.
6. What does the Matsushita case teach you about the relationship between societal
culture and business success?
Answer: This question should generate an interesting discussion among students. Some
students may see culture as driving business, while others may suggest that just the
opposite occurs. In both cases though, students will probably recognize the importance
of societal culture in business.
Mired in Corruption – Kellogg, Brown & Root in Nigeria
1. Could Jeffrey Tesler’s alleged payment of bribes to Nigerian government officials be
considered “facilitating payments” or “speed money” under the terms of the Foreign
Corrupt Practices Act?
Answer: Under the terms of the Foreign Corrupt Practices Act, facilitating payments or
speed money refer to payments made to ensure that companies are receiving the standard
treatment that a business ought to receive from a foreign official, but might not receive
due to the obstruction of a foreign official. They do not include payments to secure
contracts that would not otherwise be secured, nor payments to obtain exclusive
preferential treatment. Most students will probably agree that the sheer size of the
alleged payments by Jeffrey Tesler would imply that the payments fall outside the realm
of speed money or facilitating payments, and instead suggest a bribe.
2. Irrespective of the legality of any payments that Tesler may have made, do you think it
was reasonable for KBR to hire him as an intermediary?
Answer: Jeffrey Tesler was hired by KBR to help the company obtain government
permits for the LNG project. Tesler’s long-term relationships with many senior Nigerian
government and military officials made him an attractive candidate for the job. KBR also
had a former connection with Tesler. He had brokered the sale of Kellogg’s interest in a
Nigerian fertilizer plant in the mid-1980s. For these reasons, many students will
probably conclude that it was reasonable for KBR to hire Tesler as an intermediary.
3. Given the known corruption of the Abacha government in Nigeria, should Kellogg and
its successor, KBR, have had a policy in place to deal with bribery and corruption? What
might that policy have looked like?
Answer: This question will probably generate a fair amount of discussion. Some students
will probably take the perspective that all companies should have clear ethics policies in
place that govern the behavior of employees regardless of where they operate. Other
students however, may suggest that such a policy might be too rigid for companies that
do business in parts of the world where corrupt governments are in power. Some
students may argue that ethical companies should simply avoid doing business with
governments like the Abacha regime, but still others may note that doing so could
severely limit the opportunities for some companies. In the end, students will probably
conclude that Kellogg and KBR should have had some sort of policy in place to deal with
corruption and bribery, but they may not agree on just what that policy should look like.
4. Should KBR have walked away from the Nigerian LNG project once it became clear
that the payment of bribes might be required to secure the contract?
Answer: When Dan Etete took over as oil minister, he immediately began to change the
terms of a deal that had been in the final negotiation stage. Many students will probably
suggest that KBR’s willingness to respond to Etete’s demand was reasonable given that
the company had already invested significant effort at securing the LNG project.
Students taking this perspective may argue that KBR may not have realized just what
would be involved in finally securing the contract, and subsequent events were simply a
case of a situation that spiraled out of control. Other students however, are likely to
suggest that KBR should have walked away from the deal. Students taking this point of
view will probably argue that KBR knew that the demands made by Etete were unethical,
and that while it might mean that the company would lose the contract, the company
should have taken a more ethical stance.
5. There is evidence that Jack Stanley, the former head of M.W. Kellogg and KBR, may
have taken kickback payments from Tesler. At least one other former Kellogg employee,
Wojciech Chodan, may have taken kickback payments. What does this tell you about the
possible nature of the ethical climate at Kellogg and then KBR?
Answer: Most students will probably conclude that the ethical standards at Kellogg and
then KBR were poor at best. Some students may suggest that the company fought to
acquire what it wanted, regardless of the cost. Some students may suggest that the “win
at all costs” mentality of the firm may have encouraged senior executives to put aside
their ethical standards in favor of “making the numbers.”
6. Should Halliburton be called to account if it is shown that its KBR unit used bribery to
gain business in Nigeria? To what extent should a corporation and its officers be held
accountable for ethically suspect activities by the managers in one of its subsidiaries,
particularly given that many of those activities were initiated before Halliburton owned
the subsidiaries?
Answer: This question is likely to generate mixed responses. Some students will
probably suggest that Halliburton should indeed be held responsible for the behavior of
KBR executives in Nigeria. Students taking this perspective will probably argue that it is
the responsibility of a company to know what its employees are doing, and that to suggest
that Halliburton be resolved of responsibility simply because KBR was a subsidiary, and
that because some activities may have taken place prior to the unit be acquired is
unethical in and of itself. Other students however, may point out that Halliburton could
have had no responsibility for actions taken by KBR prior to its acquisition, and so
should not be held responsible for those. Students taking this view will probably agree
however, that Halliburton should have put an end to questionable practices as soon as the
unit was acquired.
Part Three: International Trade Theory; The Political Economy of
International Trade; Foreign Direct Investment; Regional
Economic Integration
Agricultural Subsidies and Development (Video Case)
1. If agricultural tariffs and subsidies to producers were removed overnight, what would
the impact be on the average consumer in developed nations such as the United States
and the EU countries? What would be the impact on the average farmer? Do you think
the total benefits outweigh the total costs, or vice versa?
Answer: The average consumer in developed nations would probably see a slight rise in
the cost of commodities as the commodity price reached a global equilibrium. The effect
on the farmer would be more substantial because he/she would no longer be protected
from international demand and prices. When it comes to determining whether the total
benefits outweigh the total costs, there is no clear answer. In theory, free markets are
better. However, the reality is that governments are involved in the markets, and so if the
United States and EU countries eliminate trade barriers, the benefits might outweigh the
costs, but it really depends in part on the political role of subsidies and the commitment
to open markets in these countries and others. Some students might point out that other
factors must be considered as well. Farmers could, for example, switch to more
profitable crops than the ones that would be rendered uneconomical by the liberalization
of tariffs and the removal of subsidies.
2. Which do you think would help the citizens of the world’s poorest nations more,
increasing foreign aid or removing all agricultural tariffs and subsidies?
Answer: Removing all agricultural subsidies would allow agricultural products from the
developing world to compete with those from the developed world and allow them to
begin to build markets for their produce in the developed world. Foreign aid addresses
additional issues beyond the agricultural sector such as health care and infrastructure
concerns like electrification, roads, harbors, etc. So removing subsidies would help one
sector of the developing economy, and that would have a ripple effect; but there are other
sectors that would still require foreign aid. Zero agricultural subsidies will not impact the
AIDS crisis. Some students may suggest that both are needed. They may point out that
the benefits of removing agricultural subsidiaries will take time to develop, and that
during that process, foreign aid is still very necessary.
3. Why do you think governments in developed nations continue to lavish extensive
support on agricultural producers, even though those producers constitute a very small
segment of the population?
Answer: Farming interests are a strong political force in most developed countries.
Farmers tend to have disproportional voting power. In the U.S. Senate for example,
Indiana has the same voting power as New York, yet their populations are very different.
In Japan, people in cities go “home” to vote in their villages of origin. This allows rural
farmers to have a powerful political voice.
4. The current Doha Round of trade organized by the World Trade Organization talks is
trying to reduce barriers to free trade in agriculture. So far, however, the talks have made
little concrete progress on this issue. Why do you think this is the case? What other
solutions might there be to the problems created by barriers to trade in agriculture?
Answer: Many students will probably note that there is strong resistance to the
elimination of agricultural subsidies in developed countries. Developed country farmers
have been active in voicing their complaints against any movement to remove the
subsidies which makes it difficult for the Doha talks to progress. The developing
countries in contrast, have had greater difficulty in making their perspectives heard,
although there are signs that the world’s developing economies have reached their limit,
and are now, as a group, forcing the World Trade Organization to take a more active role
in resolving the dispute.
Boeing versus Airbus: Two Decades of Trade Disputes (Video Case)
1. Do you believe Airbus could have become a viable competitor without subsidies?
Answer: This question will probably generate some discussion among students. Many
students will probably agree that given the huge development costs, the large number of
sales needed to break even, the long wait for those sales, and the negative cash flow
during development, that there is a strong case for subsidies.
2. Why do you think the four European governments agreed to subsidize the
establishment of Airbus?
Answer: Many students will probably see the establishment of Airbus as a means of
competing head-on with the United States. an American company. If Europe did not
have an aircraft maker of its won, it would rely on the United States for both military and
commercial aircraft. Some students may also suggest that by establishing Airbus, Europe
can continue to be an active participant in the aerospace industry.
3. Is Airbus’s position with regard to the long running dispute over subsidies reasonable?
Answer: There are several ways to look at this question. From a European perspective,
Airbus can be seen as being reasonable in that it could be argued that the company is
trying to preserve competition in the market in an effort to protect the consumer.
According to Airbus, Boeing is also receiving subsidies, and so therefore, the subsidies
Airbus receives should not be an issue. Airbus also claims that its success has less to do
with subsidies than with having a good strategy and a good product.
4. Do you think that the 1992 trade agreement was reasonable?
Answer: Most students will probably suggest that the pact that was reached in 1992
seemed to be acceptable to all parties. In fact some students may wonder why the newly
elected President Clinton chose to focus on the European subsidies in 1993.
5. Why do you think that the U.S. industry reacted with caution to attempts by politicians
to reopen the trade dispute in 1993?
Answer: Many students will probably suggest that the agreement that was reached in
1992 eliminated some of the animosity that had been part of the industry prior to the
agreement. Students may suggest that U.S. companies were unwilling to step into a
battle so soon after the agreement had been reached. Other students may also note that
some American companies like Pratt & Whitney stood to lose if the agreement were
renegotiated.
6. In an era of global competition, what is the case for antitrust authorities to permit the
formation of large domestic firms through mergers and acquisitions?
Answer: Most students will probably note that mergers and acquisitions can effectively
reduce competition in the market, which ultimately can drive prices up and limit choice.
Students taking this perspective will probably suggest that domestic consumers have a
right to protection from reduced competition in the marketplace. Some students may also
note that a vibrant, competitive environment keeps innovation efforts going and acts as a
catalyst for knowledge development.
7. Was the threat by EU authorities to declare the Boeing–McDonnell Douglas merger
illegal a violation of U.S. national sovereignty?
Answer: While the EU was not happy with the competitive threat a merger between
Boeing and McDonnell Douglas could create, it had no real means of stopping a merger.
At most, the EU could limit the business that a combined Boeing-McDonnell Douglas
could conduct in Europe, and restrict landing rights for Boeing planes. Consequently,
most students will probably agree that the EU’s position was not a direct violation of U.S.
national sovereignty.
8. Do you think the EU Commission had a strong case in its attempts to wring
concessions from Boeing regarding the merger with McDonnell Douglas? Was Boeing
right to make significant concessions to the EU? What might have occurred if the
concessions were not made?
Answer: Most students will probably note that the fact that the EU did indeed obtain
concessions from Boeing suggests that at least Boeing thought that there was a strong
case. Boeing had essentially monopoly-like arrangements with three major U.S. airline
companies. If the company had failed to make the concessions, the EU could have
blocked the merger. It was important for Boeing to keep the peace because EU countries
continue to be major customers for Boeing.
9. Why did the U.S. government decide to reopen the long running trade dispute between
Boeing and Airbus in 2004? Do you think the position of the U.S. is reasonable? What
about the counter charges made by the EU? Are they reasonable?
Answer: In 2004 the U.S. reopened the trade dispute based on the indication that Airbus
was going after $1.7 billion in launch aid for the development of a plane designed to
compete against Boeing’s new 787. This seems a reasonable complaint because the
funding was directly from governments and did not seem to be in the form of a loan. The
EU counter argument, that Boeing also receives substantial subsidies, also seems
reasonable, although the Boeing subsidies seem to be indirect. It appears that both
Boeing and Airbus receive subsidies, direct and indirect.
10. Now that the dispute has gone to the World Trade Organization, what do you think
would be a fair and equitable outcome?
Answer: This question will probably generate a number of responses. Some students
may suggest that a halt to all subsidies for civil aircraft would be appropriate. Other
students might suggest that Airbus manufacture more components in the US.
The Politics of Steel (Video Case)
1. Do you believe the Bush administration was correct in imposing tariffs in March 2002
on a wide range of steel imports?
Answer: Many students will probably suggest that by imposing the tariffs, President
Bush was simply postponing the inevitable failure of inefficient U.S. steel plants. While
it could be argued that protecting domestic industry and jobs are important, it is also
important to protect consumers, and avoid the enabling of inefficient industries. Some
students may also note that by imposing the tariffs, President Bush created unnecessary
trade conflict.
2. Who are the main beneficiaries of protective tariffs such as those imposed on steel
imports? Who are the losers?
Answer: The beneficiaries of protective tariffs are, short term, the industry itself, people
employed in the industry, politicians who may be seen to be “protecting” the industry.
The losers are the domestic consumer, who pays for the inefficiencies in higher prices,
the foreign exporter who could sell into the U.S. market, and long term, the people in the
industry, who are protected from facing economic reality. Clearly the steel industry can
flourish in the U.S., as shown by Nucor.
3. Does the action of the World Trade Organization in this case represent a loss of U.S.
national sovereignty? Why do you think the WTO sided with the European Union?
Answer: The tariffs imposed by President Bush were a clear violation of the WTO
agreements to which the United States had agreed! Therefore, most students will
probably agree that the decision by the WTO to enforce WTO rules to which the U.S. had
agreed was appropriate, and not a loss of sovereignty.
4. If all tariffs on international trade in steel were removed, and subsidies to steel
exporters around the world were banned, who would this benefit? Who would lose from
such action?
Answer: If tariffs on international trade in steel were removed, and subsidies to steel
exporters around the world were banned, the consumer would stand to benefit, while the
inefficient steel producer would lose.
Dixon Ticonderoga – Victim of Globalization
1. Why do you think that the Chinese apparently have a cost advantage in the production
of pencils?
Answer: Most students will probably suggest that the Chinese have a cost advantage
thanks to lower labor and raw materials costs.
2. Do you think that lobbying the U.S. government to impose antidumping duties on
imports of pencils from China is a good way to protect American jobs? Who benefits
most from such duties, who loses? What alternative policy stance might the government
take?
Answer: The U.S. pencil industry began lobbying the U.S. government to impose
antidumping duties on Chinese pencil imports in the early 1990s. At the time, the
industry was watching its market share being eroded by Chinese producers that were
exporting low-priced pencils. Most students will probably agree that the imposition of
duties by the U.S. government was nothing more than a stop-gap measure. In order to
compete, U.S. producers needed to become more efficient and innovative. While the
duties protected U.S. producers and workers in the short-term, they also harmed
consumers who had to pay higher prices for pencils. Some students may suggest that
rather than imposing duties, the government might have provided incentives for U.S.
producers to find better ways to compete.
3. By establishing facilities in Mexico Dixon became a multinational company. Why has
Dixon become a multinational? What are the economic benefits to Dixon of becoming an
international business?
Answer: A multinational enterprise is defined to be a firm that owns business operations
in more than one country. In 1999, Dixon established a wholly owned manufacturing
operation in Mexico. Doing so allowed Dixon to take advantage of Mexico’s lower
manufacturing costs. Many students will probably also note that by diversifying its
manufacturing base, Dixon now has greater flexibility in its manufacturing operations
which will allow it to shift its production as the market situation warrants.
4. Now that Dixon has a production operation in China, why does it not simply import
finished pencils from China to the United States, instead of making those pencils in
Mexico?
Answer: It is advantageous for Dixon to continue to manufacture and assemble pencils in
Mexico because of the North American Free Trade Agreement (NAFTA). Dixon’s
exports from Mexico fall under NAFTA, and so do not incur duties when they are
imported into the U.S. In contrast, imports from China would incur duties.
Drug Development in the European Union
1. To what extent have regulations and institutional arrangements in the EU put European
drug companies at disadvantage vis-à-vis their competitors in the United States?
Answer: Regulations and institutional arrangements in the EU have probably put
European drug companies at a disadvantage vis-à-vis their U.S. competitors. The
regulations have created opportunities for arbitrage within the EU markets, allowing
distributors to buy products in lower-priced markets and resell them in higher-priced
ones. This situation results in lower profits for drug companies. In fact, it is estimated
that arbitrageurs capture some €6 billion in sales every year, and the profits associated
with those sales. If profits are lower, a company is less likely to pursue new R&D.
2. What would the EU have to do to put EU companies on an equal footing with drug
companies based in the United States?
Answer: Some students may suggest that one way to put EU companies on an equal
footing with U.S. companies is to establish one market price to eliminate arbitrage
opportunities. Other students might suggest that the EU lengthen the time frame
permitted before generic versions of drugs can be introduced so that the drug companies
can better recoup their R&D costs.
3. Who is likely to oppose any attempt to outlaw arbitrage with regards to drugs within
the EU? What do you think there arguments will be? How successful might they be?
Answer: Attempts to oppose the opportunity for arbitrage within the EU’s drug market
are most likely to come from those who benefit the most from the process. Students may
suggest that consumer advocacy groups, consumers, and possibly government health
agencies are all likely to oppose anti-arbitrage laws, as well as pharmacies in the low-cost
markets. These groups are likely to suggest that outlawing arbitrage will lead to higher
prices for drugs. While they may find some who will listen to their arguments, others
will probably consider the perspective of the drug companies who claim they need to
make bigger profits in order to conduct further research.
4. What does this case tell you about the efficacy of the attempt to establish a single
market for goods and services within the European Union?
Answer: Most students will probably suggest that this is a good example of just how
hard it can be to have a truly single market where all regulations are the same. Each
country within the EU has restrictions and regulations in place for various reasons –
reasons which may or may not be pertinent to other countries within the EU. Trying to
find a common ground can be a painstaking process.
5. If arbitrage in the EU is allowed to continue, what do you think the response of EU
drug companies will be?
Answer: If arbitrage is allowed to continue, the drug companies could price to one
market; they could control sales to supply low cost markets with drugs to meet local
demand, not for re-export. They might also withdraw from the low-cost markets and
renegotiate their prices with those governments.
Logitech
1. In a world without trade, what would happen to the costs that American consumers
would have to pay for Logitech’s products?
Answer: Logitech, which is headquartered in California, currently does its R&D in
Switzerland and California, and its manufacturing in Asia. Without trade, Logitech
would have to develop the entire value-added chain in each market. This would certainly
raise costs for consumers, and could also limit choices.
2. Explain how trade lowers the costs of making computer peripherals such as mice and
keyboards.
Answer: Trade is important to Logitech because it allows the company to perform valueadded activities in the best location for each activity, wherever that may be. So, thanks to
trade, Logitech can take advantage of the R&D capabilities available in Switzerland, yet
at the same time capitalize on lower-cost production in Taiwan and China.
3. Use the theory of comparative advantage to explain the way in which Logitech has
configured its global operations. Why does the company manufacture in China and
Taiwan, undertake basic R&D in California and Switzerland, design products in Ireland,
and coordinate marketing and operations from California?
Answer: The theory of comparative advantage suggests that countries specialize in the
production of those products in which they have a comparative advantage, and trade for
other products. Logitech has configured its global operations according to this basic
premise. The United States and Switzerland have a comparative advantage in basic
R&D, while Ireland specializes in the design of computer peripherals, so Logitech has
located its R&D operations in these countries. Similarly, it makes sense for Logitech to
take advantage of China and Taiwan’s comparative advantage in the production of
computer peripherals.
4. Who creates more value for Logitech, the 650 people it employs in Fremont and
Switzerland, or the 4,000 employees at its Chinese factories? What are the implications
of this observation for the argument that free trade is beneficial?
Answer: Logitech has been successful at selling innovative products that have high-brand
recognition, and that are widely available. Therefore, most students will probably
conclude that the 650 people in Fremont and Switzerland are more important to Logitech
than the 4,000 employees in China. The employees in China are responsible for
manufacturing a product that has already been designed. Without the product design
however, the factories are unneeded. In contrast, the 650 people in Fremont and
California are responsible for product design, a critical valued-adding activity, marketing,
finance, and logistics. They can hire a different factory to manufacture the product they
have developed if necessary.
5. Why do you think the company decided to shift its corporate headquarters from
Switzerland to Fremont?
Answer: Logitech was founded in Switzerland, but is currently headquartered in the
Fremont, California. The company made the decision to move its headquarters from
Switzerland to Fremont in order to be closer to America’s high-technology companies.
The company also wanted to take advantage of the marketing, finance, and logistics
available in California.
6. To what extent can Porter’s diamond help explain the choice of Taiwan as a major
manufacturing site for Logitech?
Answer: Michael Porter argues that four attributes determine the competitiveness of a
nation – factor endowments; firm strategy structure, and rivalry; demand conditions; and
related and supporting industries. According to Porter, a firm is most likely to succeed in
industries where the four attributes, or diamond, are favorable. Taiwan is an attractive
manufacturing site for Logitech because these four factors are favorable. To sell to
prestigious OEM customers, Logitech needed the high volume, low cost production
capabilities offered by Taiwan. Taiwan also had a strong supply base for parts, qualified
people, and a rapidly emerging local computer industry.
7. Why do you think China is now a favored location for so much high technology
manufacturing activity? How will China’s increasing involvement in global trade help
that country? How will it help the world’s developed economies? What potential
problems are associated with moving work to China?
Answer: Foreign companies now account for as much as three-quarters of China’s hightech exports. Most students will probably note that the low wage rate in China is a key
factor that makes the country attractive for manufacturing. Some students may also
suggest that other factors are important too. For example, China’s increasing dominance
in world trade gives the country more bargaining power. Most students will probably
suggest that as China becomes more involved in global trade, the country should see its
standard of living rise. Many students will probably conclude that even with low wages,
China is not the answer to everyone. Companies moving to China must be aware that
despite its outward appearance of having a market economy, the country remains under
communist rule.
Part Four: The Foreign Exchange Market; The International
Monetary System; The Global Capital Market
The Tragedy of the Congo
1. What was the goal of the policies that (a) the IMF and (b) World Bank adopted toward
Zaire? Do you think these policies were appropriate for an impoverished nation? In what
ways may IMF policies have contributed to economic problems in Zaire?
Answer: The policies put in place by the IMF and World Bank were designed to support
Zaire’s economic stabilization plan and the country’s development of infrastructure. The
policies involved currency devaluations to boost exports, cuts in government subsidies,
and higher taxes. However, despite these efforts, the situation in Zaire continued to
deteriorate. Some critics felt that the IMF policies were poorly suited to the country, and
actually contributed to a cycle of economic decline by driving work into the underground
economy or even creating a disincentive to work.
2. Do you think the IMF and World Bank should lend money to countries such as Zaire
where there is systematic evidence of widespread government corruption?
Answer: The IMF and the World Bank were created to maintain order in the economic
monetary system, and promote general economic development. The question of whether
the organizations should loan money to corrupt governments is a difficult one. If the
World Bank and IMF participate and support such corrupt governments, in a sense, they
condone the corruption. Their financial resources also contribute to the corruption,
because much of the loan or aid funding is re-exported into private bank accounts. On
the other hand, if they fail to provide assistance to corrupt countries, they have, in a
sense, failed to do their job.
3. What alternative policies could the IMF and World Bank have adopted in Zaire? How
might these policies have helped the country avert the economic and political chaos of the
1990s, which include a prolonged civil war and economic disintegration?
Answer: Many students will probably suggest that the IMF and the World Bank should
have demanded a higher level of government transparency. Other students might note
that policies that would support the growth of small business and their exports might have
provided an incentive to work, and been more successful than some of the more macro
approaches that were used. In addition, students may suggest that an emphasis on
creating trust in the business and government might have been helpful.
The Russian Ruble Crisis and Its Aftermath
1. What were the causes of the surge in inflation in Russia during the early 1990s? Could
this have been avoided? How?
Answer: Inflation in Russia surged in the 1990s following the removal of traditional
price controls. During the Communist regime, ongoing shortages of many goods in the
market led to currency hording. When price controls were lifted, but supplies of goods
were still limited, inflation soared as too much money chased too few goods. Adding to
the mess was the decision by the government to continue subsidizing many unprofitable
enterprises. Rather than fund this by raising taxes, the government simply printed more
money. Many students will probably suggest that the inflationary spike could have been
avoided by raising taxes, stopping subsidies to unprofitable enterprises, not increasing the
money supply, and trying to reduce the government budget deficit.
2. What does the decline in the value of the ruble against the dollar between 1992 and
1998 teach you about the relationship between inflation rates and currency values?
Answer: The decline in the value of the ruble against the dollar between 1992 and 1998
illustrates how currency values are influenced by inflation rates. Students should
recognize that inflation leads to the devaluation of currencies.
3. During the mid 1990s, the IMF wanted Russia to raise tax rates, close loopholes in the
tax system, and cut public spending. Russia was unable to do this. Why?
Answer: Russia was unable to follow the IMF prescription in the mid 1990s in part
because the oil price slump meant lower government revenues from taxes. In addition,
because a significant amount of economic activity was “underground,” collecting taxes
was difficult, and loopholes in the tax code allowed many to avoid paying taxes.
4. In the early 2000s Russia cut tax rates for individuals and corporations, and
government tax revenues surged. Why? Does this result suggest that the IMF policy
prescriptions were wrong?
Answer: After the IMF effectively turned its back on Russia, the government looked for
ways to improve its financial state. In addition to cutting government spending, the IMF
replaced its complex tax code with a flat tax for individuals and corporations.
Corporations and individuals responded to the simpler tax code by paying their taxes
instead of avoiding them increasing the country’s tax revenues significantly. Many
students will see this as an indicator that the IMF policy was wrong. Other students may
suggest that the turnaround may be more of a case of Russia’s government finally
“getting it” -- that massive reform was necessary for the situation to improve.
Japan’s Surging Samurai Bond Market
1. What were the macroeconomic underpinnings of the increase in Samurai bond issues?
Answer: The combination of a sharp drop in its stock market and in its real estate market
contributed to a prolonged economic downswing in Japan during the 1990s. While the
country flirted with recession, the Bank of Japan lowered interest rates in a desperate
attempt to encourage consumer and corporate spending. These efforts ultimately meant
that Japan had one of the lowest interest rates in the world. Foreign companies were able
to take advantage of these low rates and issue yen-denominated debt, also known as
Samurai bonds. The number of Samurai bond issues increased from less than 20 in 1998
to more than 120 in 2000.
2. How might an increase in Japan’s rate of economic growth affect the vitality of the
Samurai bond market?
Answer: The Bank of Japan initially lowered rates in an effort to contend with the
country’s economic downswing. These lower interest rates made it attractive for foreign
companies to issue Samurai bonds. However, once Japan’s economy improves, interest
rates may rise again, making it less attractive for companies to issue foreign bonds in
Japan.
3. For a company like Deutsche Telekom, which issues yen-denominated debt to raise
funds for investments outside of Japan, the lower interest rates must be offset against
higher costs. What are these higher costs, and what determines their magnitude?
Answer: Companies issue bonds in other markets if they believe it will lower their cost of
capital. With interest rates on Japanese government bonds around 1.25%, foreign bond
issues with rates of even 2.25 percent look very attractive to Japanese investors.
However, Samurai bonds are issued in yen, and most students will recognize that
companies issuing foreign bonds also then incur foreign exchange risk.
4. What would happen to activity in the Samurai bond market if the yen started to
appreciate significantly against the dollar, but interest rate differentials between the
United States and Japan stayed constant? What would happen if the yen depreciated
against the dollar? What does this tell you about the risks of issuing foreign bonds?
Answer: When a company issues bonds, it is borrowing from investors and agreeing to
pay back the principal borrowed, plus interest. So a foreign company that borrows yen
could find that the cost of paying that loan back will change as the exchange rate
changes. If the yen appreciates, it will cost the American firm more to buy yen. If the
yen depreciates, it will cost fewer dollars to buy the same amount of yen. So, while it can
be tempting to consider only interest rate differentials when considering the cost of a
foreign bond issue, it is also important to recognize how a shift in a currency’s value
might change the cost of the issue.
Part Five: The Strategy and Structure of International Business;
The Organization of International Business; Entry Strategy and
Strategic Alliances
Toyota – The Rise of a Global Corporation
1. Compare and contrast Toyota’s revolutionary lean production system with the
traditional mass production system for making automobiles. How is Toyota’s system
superior?
Answer: Toyota set out to correct what it perceived as being five critical flaws in the
traditionally accepted mass production system for producing automobiles. Specifically,
Toyota felt that long productions runs meant large inventories, that if there are errors,
there is a large number of defects, that the monotony of production line work leads to
quality control problems, that the division of labor involved in the production line is
inefficient, and that mass production did not focus on consumer needs for product
diversification. Toyota’s lean production approach reduced set up times making small
production runs feasible, reduced inventories, improved quality, and allowed for a greater
response to customer needs.
2. Compare and contrast the arms length relationships that Toyota used to manage
suppliers in Japan with the approach traditionally taken by U.S. automobile
manufacturers. What were the benefits of the Toyota system? Can you see any
drawbacks?
Answer: Toyota sees its suppliers as being part of the family, and so takes an approach
where risk and fate are shared. In contrast, in the United States, suppliers are seen as an
adversary that need to be squeezed. Many students will recognize that Toyota’s
approach to its suppliers means that quality levels may be higher, that supplies are
assured, and that by having a supplier as part of the family, Toyota can avoid the capital
expenditures related to vertical integration. However, some students may note that this
type of relationship could come under antitrust scrutiny, and regulations. In addition, by
linking with a certain supplier, Toyota may miss out on an opportunity to work with a
new, perhaps more nimble and more price-competitive player.
3. What drove the development of Toyota’s revolutionary “lean production system”
during the 1950s-1980s? To what extent were factors unique to Japan during this time
frame responsible for the development of the lean production system?
Answer: Several factors led to the development of Toyota’s lean production system.
Japan’s domestic market was small, making the possibility of a more traditional mass
production approach difficult. Funds for investment were scarce. New labor laws gave
more power to the worker, made layoffs nearly impossible, but also paved the way for the
team approach to production. Many students will probably suggest that Japan’s unique
culture that emphasizes the group rather than the individual was also important to
Toyota’s success.
4. Why did Toyota enter into the NUMMI joint venture with General Motors in 1984?
What were the benefits of this venture to Toyota?
Answer: The NUMMI joint venture offered several advantages to Toyota. First, it gave
the company a means of circumventing the voluntary restrictions the U.S. government
had negotiated with the Japanese government to limit the number of Japanese cars
imported into the U.S. It also provided Toyota with the opportunity to learn about the
U.S. labor market and working with U.S. unions. Third, NUMMI gave Toyota a chance
to work with U.S. autoworkers and suppliers. In addition, the joint venture gave Toyota
a chance to show Americans that it was a good corporate citizen.
5. What drove Toyota subsequent expansion of production facilities in the United States
and Europe?
Answer: The success of Toyota’s NUMMI venture positioned the company for further
international expansion. In 1985, the company established a manufacturing plant in
Kentucky, and then added a second plant in 1990. By 2006, Toyota had plants in
Kentucky, California, Indiana, Texas, and Ontario, Canada. By 2010, Toyota expects to
make 2.2 million vehicles in the United States. Toyota has made similar investments in
Europe. Having operations in important markets around the world allows the company to
avoid trade restrictions, “voluntary” quotas, local content demands, and other non tariff
barriers to trade.
6. In general, Toyota’s foreign plants have achieved productivity levels similar to those in
Japan. What conclusion can you draw from this about the role of national culture in
shaping Toyota’s lean production system?
Answer: Most students ill probably focus on the notion that culture can be learned.
Toyota appears to have successfully transferred a key component of its success-its group
oriented corporate culture.
7. What evidence is there in the case that Toyota is becoming more of a global
corporation? What are the implications of this for the long-term competitive advantage of
the company?
Answer: In 2006, Toyota had 52 production facilities in 26 countries around the world.
Toyota also held nearly 15 percent of the all-important U.S. market. In fact, Toyota sells
more vehicles in the United States, than in Japan. With net profits of $11 billion in 2007,
Toyota’s profits are significantly higher than those of its competitors combined. Many
students will probably note that while Toyota is the industry leader in both quality and
productivity, the pressure will be on the company to maintain that lead. Both General
Motors and Ford have been closing the quality and productivity gap in recent years, and
some critics have suggested that Toyota’s designs lack flair and may not really meet the
needs of consumers. Toyota must also work to expand its aging customer base.
Nestle: Global Strategy
1. Does it make sense for Nestle to focus its growth efforts on emerging markets? Why?
Answer: Since it was founded, Nestle has relied on markets outside its home country of
Switzerland for growth opportunities. By the 1990s, the North American and Western
European markets were saturated, and Nestle turned to the emerging markets of Eastern
Europe, Asia, and Latin America. Most students will probably agree that for Nestle to
maintain its growth levels, the company needs markets like these since competition in its
traditional markets is high.
2. What is the company’s strategy with regard to business development in emerging
markets? Does this strategy make sense?
Answer: Nestle’s strategy in emerging markets is simple – get there before the
competition does, and build market share by selling basic food items with wide appeal.
This strategy allows the company to focus its resources on a few brands in a few key
market niches, and build a significant lead. Once the company has gained a foothold in
the market, it introduces more upscale items. Most students will probably agree that
Nestle’s strategy seems to be working. The company has some 85 percent of Mexico’s
instant coffee market, 66 percent of the market for powdered milk in the Philippines, and
70 percent of Chile’s soup market.
3. From an organizational perspective, what is required for this strategy to work
effectively?
Answer: Nestle tries to sell products that appeal to local markets. In fact, of its 8,500
brands, just 80 are sold in more than 10 countries. This means that Nestle must maintain
a highly decentralized organizational structure, where many decisions on pricing,
distribution, marketing, and human resources are made at the local level. Higher level
decisions are made by the company’s seven worldwide strategic business units. To
implement its strategy, Nestle relies on many local managers, and also a cadre of
expatriates who move from country to country as needed.
4. How would you describe Nestle’s strategic posture at the corporate level; is it pursuing
a global strategy, a multidomestic strategy, an international strategy, or a transnational
strategy?
Answer: Nestle owns some 8,500 brands, yet sells just 80 of them in more than 10
countries. Instead, Nestle tends to focus on locally recognized products in each market.
Some students will probably conclude that based on this, the company is clearly not
pursuing a global strategy, but instead is closer to a multidomestic approach. However,
other students might suggest that Nestle has a transnational strategy given that high-level
strategic decisions are handled by the company’s seven worldwide strategic business
units, and that organization is also divided into five geographic zones which have
responsibility for the overall strategy development process.
5. Does this overall strategic posture make sense given the markets and countries that
Nestle participates in? Why?
Answer: Most students will probably agree that because food preferences tend to be
culturally bound, the strategy that Nestle has developed of maintaining a high number of
local brands makes sense. Nestle has a presence in nearly every country in the world, and
it would be unreasonable to expect that the company could follow a global strategy across
so many markets.
6. Is Nestle’s management structure and philosophy aligned with its overall strategic
posture?
Answer: Nestle is divided both by geographic areas and by business units. While many
decisions are handled at the local level, Nestle also has a group of expatriate managers
who move from country to country to bring the various operations together. In addition,
the company strives to create a more unified organization by holding regular training
programs that involve managers from around the world. Most students will probably
agree that Nestle’s management structure and philosophy is generally in line with its
overall strategic posture.
Strategies and Organizational Change at Black & Decker
1. How would you characterize Black & Decker’s international expansion during the
1950s and 1960s? What strategy was the company pursuing? What was the key feature of
the international organization structure that Black & Decker operated with at this time?
Did Black & Decker’s strategy and structure make sense given the competitive
environment at that time?
Answer: During the 1950s and 1960s, Black & Decker established 23 wholly owned
subsidiaries and two joint ventures in foreign markets. Black & Decker felt it was
important to keep all business functions as close to the local market as possible, so each
unit had the right to develop, manufacture, and market the company’s power tools. Most
students will probably suggest the company was following a localization strategy during
this time period, with a worldwide area structure. This strategy and structure made sense
at the time given that the company had a strong brand name and near monopoly share of
the market.
2. How did the competitive environment confronting Black & Decker change during the
1980s and 1990s? What changes did Black & Decker make in its (a) strategy and (b)
structure to compete more effectively in this new environment?
Answer: During the 1980s and 1990s, competition in the power tool industry increased.
Many new companies like Bosch, Makita and Panasonic entered the industry threatening
Black & Decker’s former monopoly position. The company shifted to a rationalization
strategy and closed several factories, centralized R&D, and centralized production
decisions. Production and R&D were concentrated in a few efficient locations. The net
result was that the firm shifted from being a series of relatively independent subsidiaries
to a more centralized organization.
3. By the 2000s what strategy was Black & Decker pursuing in the global market place?
How would you characterize its structure? Did the structure fit the strategy and
environment?
Answer: In the 2000s, Black & Decker moved production to low cost global centers in
China, Mexico and the Czech Republic, and did all R&D and new product development
work in two centers – one in the U.K. and one in the U.S. Most students will probably
suggest that Black & Decker had moved to a global strategy phase, with production in
low cost locations and R&D in areas that have a comparative advantage for that work.
The company officially established two distinct divisions in 2004, one that was
responsible for Black & Decker power tools, and one that was responsible for the DeWalt
brand. Most students will suggest this worldwide product division approach is in line
with the firm’s strategy.
4. Why do you think it took the best part of two decades for Black and Decker to effect a
change in strategy and structure?
Answer: Most students will probably agree that Black & Decker’s strategy seems to have
evolved with changing competitive conditions. Students may note that change is not
always easy, and to move from the highly decentralized organization of the 1950s and
1960s to the much more centralized current organization takes time.
Organizational Culture and Incentives at Lincoln Electric
1. What is the source of Lincoln’s long-standing competitive advantage in the United
States market for welding equipment?
Answer: Lincoln Electric attributes its success in the welding equipment market to the
extremely high productivity levels of its employees. The company’s strong
organizational culture and incentive policy give the Lincoln Electric a lower cost
structure than competitors –despite the fact that Lincoln’s employees are among the
highest paid factory workers in the world.
2. Why did Lincoln enter foreign markets through acquisitions and greenfield ventures
rather than through exporting?
Answer: Lincoln Electric began its foreign expansion in the 1980s and early 1990s.
Based on the advice of foreign distributors who told Lincoln that American-made
equipment would not sell well in Europe, the company acquired seven European
manufacturers and one Mexican company. In addition, the Lincoln built plants in Japan,
Venezuela, and Brazil.
3. Why did Lincoln’s foreign ventures fail to deliver the gains forecasted?
Answer: Lincoln ran into many problems with its foreign ventures. The company’s
senior management had little, if any, experience running foreign plants, and simply tried
to directly transfer the organizational culture and policies that worked well at home to the
company’s foreign greenfield ventures. While Lincoln left local managers in charge of
its acquisitions, it found that the local managers had difficulty acclimating themselves to
Lincoln’s strong organizational culture. In some countries, the piecework approach that
was used so successfully by Lincoln in the United States was actually illegal. Some
students will probably suggest that in addition to the company’s inability to achieve the
high productivity levels that were so important to its success in the United States, Lincoln
was also in the wrong place at the wrong time. Soon after Lincoln entered the European
market, Europe fell into a recession and many plants were working at only 50 percent of
their capacity.
4. In retrospect, what might Lincoln have done differently to avoid the financial crisis it
found itself in?
Answer: Many students will probably suggest that Lincoln made several key mistakes.
First, the company made the decision to undertake significant foreign expansion based on
the advice of distributors. Students will probably suggest that the company should have
tested the market first by exporting American-made products, and only after the company
clearly established that American-made products would not sell, should the company
have gone ahead with its foreign expansion plans. Second, students will probably
suggest that the company should have implemented its foreign expansion at a much
slower pace. Another area that students will probably focus on is the fact that Lincoln
failed to consider the source of its competitive advantage—the productivity levels of its
employees. Lincoln found that for various reasons, its foreign plants could not achieve
the same productivity levels as the plant in the United States, and so failed to deliver the
same profits as the company’s domestic operations.
5. What lessons can be gleaned from the Mexican venture?
Answer: Of all of its international ventures, Lincoln’s experience in Mexico stands out.
The company was able to gradually introduce its incentive plan that had worked so well
in the United States. Many students will probably suggest that some of the company’s
success in Mexico can be attributed to the fact that the local manager moved slowly, and
did not force employees to accept the American way of doing things. Initially just 2
percent of the workforce had the opportunity to participate in the plan, and only after
other employees recognized the benefits of being in the plan was it implemented on a
wider scale.
Part Six: Exporting, Importing and Countertrade; Global
Production, Outsourcing, and Logistics; Global Marketing and
R&D; Global Human Resource Management; Accounting in
International Business; Financial Management in the International
Business
Molex
1. What multinational strategy is Molex pursuing – localization, international, global
standardization or transnational?
Answer: Most students will probably agree that Molex is pursuing a transnational
strategy. While the company sells standardized products worldwide, and provides every
subsidiary with manuals outlining Molex’s policies and practices, it allows local units to
customize the policies and programs to the local market. Having a management staff
comprised of individuals from around the world is also important to Molex. The
company often hires foreign nationals living in the United States, and moves individuals
from country to country to allow them to gain different experiences and learn from
others.
2. How would you characterize the approach to staffing used at Molex? Is this
appropriate given its strategy?
Answer: The staffing policy at Molex would probably be considered quite geocentric.
The company seeks the best people for key jobs throughout the organization, regardless
of their nationality. These employees are then categorized in terms of where they come
from, where they are likely to go, and for how long. By shifting its managers to different
countries and allowing them to learn from others, Molex is building a cadre of globallyoriented managers. Most students will probably agree that the staffing approach is wellsuited to the company’s strategy.
3. Molex is very successful in its use of expatriate managers. Why do you think this is the
case? What can be learned from Molex’s approach?
Answer: Molex treats its expatriate managers as an asset, and supports them before,
during, and after their foreign assignments. In addition, all expatriates are treated the
same regardless of their nationality. Molex hopes that this approach will facilitate the
sharing of knowledge and contribute to the development of a common company culture.
4. How does the human resource function at Molex contribute towards the attainment of
its multinational strategy?
Answer: Most students will probably agree that the human resource function is vital to
the successful implementation of Molex’s international strategy. The company’s sells
fairly standardized products, yet its goal as a company is to be truly global in its outlook
and actions, and to be at home wherever in the world it operates. To support this strategy,
Molex’s human resource department works hard to develop a cadre of globally-minded
individual to lead the organization.
Proctor & Gamble in Japan
1. How would you characterize P&G’s product development and marketing strategy
toward Japan in the 1970s and 1980s? What were the advantages of this strategy? What
were the drawbacks?
Answer: When P&G initially entered the Japanese market in the 1970s and 1980s, the
company introduced products that had been developed in the United States and sold to
American consumers using marketing strategies that had also been developed in the
United States. This highly ethnocentric approach proved to be unsuccessful for P&G.
By 1985, the company was losing some $40 million annually in Japan, and its market
share was falling. Most students will probably agree that while it was quick and easy for
P&G to simply shift what worked well in the United States to Japan, it ultimately led to
the company’s downfall there.
2. How would you characterize the strategy since the early 1990s? What are the
advantages of this strategy? What are the potential drawbacks?
Answer: Since the early 1990s, P&G has taken a more geocentric approach to the
Japanese market place. P&G still sells brands that were developed and marketed in the
United States, but with some differences. For example, the company adapted the
marketing message associated with its Cheer laundry detergent to better reflect the
Japanese way of doing laundry. Similarly, P&G modified its disposable diaper to meet
the demands of Japanese babies who preferred a trim-fit style. In addition, P&G has
delegated some responsibility for product development and marketing to subsidiaries in
Japan and Europe. This new approach seems to be working. Among other successes,
P&G now has the best-selling dish detergent in Japan and has gained a significant share
of the disposable diaper market as well.
3. Which strategy has been more successful? Why?
Answer: Most students will probably agree that a geocentric approach to markets has
proved to be more successful for P&G than its ethnocentric approach. Students will
probably note that by paying attention to local preferences and needs, P&G is better
serving its customers.
4. What changes do you think P&G has had to make in its organization and company
culture to implement this strategic shift?
Answer: One of the key changes P&G has made in its international strategy is to delegate
more responsibility for product development and marketing to its foreign subsidiaries.
This type of strategic shift requires more flexibility in the organizational structure and
control system. In addition, it requires a shift in the organization’s culture to one in
which there is a recognition that good ideas can come from anywhere, not just from the
home market.
5. What does P&G’s experience teach us about the argument that consumer tastes and
preferences across nations are converging and global markets are becoming more
homogeneous?
Answer: Most students will probably suggest that while there is certainly evidence of
cultural convergence, P&G’s experience clearly illustrates that there is still a long way to
go before most companies will be in position to sell the same product the same way
everywhere.
Merrill Lynch in Japan
1. Given the changes that have occurred in the international capital markets during the
past decade, does Merrill Lynch’s strategy of expanding internationally make sense?
Why?
Answer: Many students will probably agree that Merrill Lynch’s strategy of expanding
internationally makes sense. By diversifying its base, the company can spread out the
effects of the fluctuations in the international capital markets. However, other students
may suggest that Merrill Lynch may be taking too many risks with its international
expansion. Students taking this perspective may point out that Merrill Lynch made a
significant investment in Japan, and then ended up losing $500 million and firing 75
percent of its workforce there.
2. What factors make Japan a suitable market for Merrill Lynch to enter?
Answer: Japan is an attractive market to Merrill Lynch for several reasons. Since the
mid-1990s, Japan has been loosening its restrictions in the financial services industry
paving the way for foreign firms to take advantage of the large financial assets held by
typical Japanese households. Prior to the loosening of the restrictions, Japanese investors
had only limited options when it came to the ¥1,220 trillion they had saved. In 1997, for
example, just 3 percent was invested in mutual funds, but the looser regulations meant
that by 1998, Japanese citizens could invest in foreign stocks, bonds, and mutual funds.
3. Review Merrill Lynch’s 1997 reentry into the Japanese private client market. Pay
close attention to the timing and scale of entry and the nature of the strategic
commitments Merrill Lynch is making in Japan. What are the potential benefits
associated with this strategy? What are the costs and risks? Do you think the trade-off
between benefits and risks and costs makes sense? Why?
Answer: In 1997, Merrill Lynch decided to reenter the Japanese market. Initially, the
company considered a joint venture with Sanwa Bank, but then decided that such a
venture would ultimately limit the company’s ability to build its business in Japan. A key
goal for Merrill Lynch was to acquire a significant share of the market quickly. In the
end, Merrill Lynch decided to take over the branch offices and hire many employees of
the failed Yamaichi Securities firm. Merrill Lynch felt that doing so would help the
company quickly establish a presence in the market. Most students will probably note
that while there are clear advantages to this strategy like having an instant workforce and
retail presence, there are also disadvantages such as making the large investment and
hiring employees that may or may not fit in with the company culture.
4. The collapse in stock market values in 2001-2002 resulted in Merrill Lynch’s Japanese
unit incurring significant losses. In retrospect, was the Japanese expansion a costly
blunder or did the company simply get hit by macroeconomic events that were difficult to
predict and avoid?
Answer: Many students will probably suggest that Merrill Lynch’s experiences in Japan
in 2001-2002 were simply a case of being in the wrong place at the wrong time. The
global stock market collapsed, and the company’s Japanese operations were especially
hard hit. Prior to that, however, the company’s investment in Japan had been going well,
and despite the downsizing the collapse caused, the company was able to continue adding
new accounts and hold on to nearly all of its assets. Some students however, may
suggest that had the company paid closer attention to the underlying causes that resulted
in the collapse of the global markets, it may have been better able to protect itself.
5. Do you think Merrill Lynch should continue in Japan? Why?
Answer: Many students will probably suggest that Merrill Lynch should indeed continue
to build a presence in the Japanese market. Japan has an unusually high savings rate, and
a government that appears to be ready to work with foreign companies. In addition, by
building is presence in the Japanese market, the firm can diversify its earnings base.
Some students may also note that despite the collapse of the global stock markets in
2001-2002, Merrill Lynch was able to turn a profit in Japan by mid-2002. On the other
hand, Japan does seem to bring problems for the company. Merrill Lynch has already
pulled out of the market once, and experienced costly losses when stock markets dropped
at the start of the twenty-first century.