CEMS
Master of International Management Programme
INTERNATIONAL BUSINESS STRATEGY
Cases
 Andrey Medvedev 2009
GSOM SPBSU CEMS MIM
INTERNATIONAL BUSINESS STRATEGY
Contents
1.
2.
INTERNATIONAL ORGANISATION DESIGN
1
1.1.
DOW CHEMICAL
1
1.2.
MOTOROLA
2
1.3.
ROYAL DUTCH SHELL
3
1.4.
ABB
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INTERNATIONAL MANUFACTURING AND TECHNOLOGY MANAGEMENT 7
2.1.
HEWLETT-PACKARD IN SINGAPORE
7
2.2.
BOEING: MAKE-OR-BUY DECISIONS
8
2.3.
GENERAL MOTORS PLANT CONSTRUCTION
9
2.4.
LI & FUNG
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International Organisation Design
1.1. Dow Chemical
The chemical industry is a global industry in which six major players compete
head to head around the world. These companies are Dow Chemical and Du Pont of the
United States, Great Britain's ICI and the German trio of BASF, Hoechst AG and Bayer.
The barriers to the free flow of chemical products between nations largely disappeared
in the 1970s. This along with the commodity nature of most bulk chemicals and a severe
recession in the early 1980s ushered in a prolonged period of intense price competition.
In such an environment, the company that wins the competitive race is the one with the
lowest costs, and in recent years that has been Dow.
Dow's managers insist that part of the credit must be placed at the feet of its
maligned "matrix" organisation. Dow's organisational matrix has three interacting
elements functions (e.g., R&D, manufacturing, marketing), businesses (e.g., ethylene,
plastics, pharmaceuticals), and geography (e.g. Spain, Germany, Brazil). Managers' job
titles incorporate all three elements – for example plastics marketing manager for Spain
– and most managers report to at least two bosses. Thus, the plastics marketing manager
in Spain might report to both the head of the world-wide plastics business and the head
of the Spanish operations. The intent of the matrix was to make Dow operations
responsive to both local market needs and corporate objectives. Thus, the plastics
business might be charged with minimising Dow's global plastics production costs,
while the Spanish operation might be charged with determining how best to sell plastics
in the Spanish market.
When Dow introduced this structure, the results were less than promising;
multiple reporting channels led to confusion and conflict. The large number of bosses
made for an unwieldy bureaucracy. The over lapping responsibilities resulted in turf
battles and a lack of accountability. Area managers disagreed with managers overseeing
business sectors about which plants should be built and where. In short, the structure
didn't work. Instead of abandoning the structure, however, Dow decided to see if it
could be made more flexible.
Dow's decision to keep its matrix structure was prompted by its move into the
pharmaceuticals industry. The company realised that the pharmaceutical business is very
different from the bulk chemicals business. In bulk chemicals, the big returns come from
achieving economies of scale in production. This dictates establishing large plants in
key locations from which regional or global markets can be served. In pharmaceuticals,
regulatory and marketing requirements for drugs vary so much from country to country
that local needs are far more important than reducing manufacturing costs through scale
economies. A high degree of local responsiveness is essential. Dow realised its
pharmaceutical business would never thrive if it were managed by the same priorities as
its mainstream chemical operations.
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Instead of abandoning its matrix, Dow decided to make it more flexible so it could
better accommodate the different businesses, each with its own priorities, within a single
management system. A small team of senior executives at headquarters now helps set
the priorities for each type of business. After priorities are identified for each business
sector, one of the three elements of the matrix – function, business or geographical area
– is given primary authority in decision making. Which element takes the lead varies
according to the type of decision and the market or location in which the company is
competing. Such flexibility requires that all employees understand what is occurring in
the rest of the matrix so they can co-operate rather than act individually. Although this
may seem confusing, Dow claims this flexible system works well and credits much of
its success to the quality of the decisions it facilitates.
Source: Hill Ch. W. L. International Business: Competing in the Global
Marketplace, 3rd ed. – Boston: McGraw-Hill, 2000. – P. 413.
1.2. Motorola
In 1980, Motorola, the cellular communications and semiconductor manufacturer,
was content to pursue a multidomestic strategy using a global geographic structure to
organise its international operations. It defined a set of world regions, and it
decentralised authority for production, marketing, and most operational decisions to
those regions. Motorola soon found, however, that this decentralised approach caused a
major problem: It prevented Motorola from co-ordinating its value creation activities on
a global basis to reduce costs. Motorola found that it was impossible to develop a global
approach to manufacturing, product development, or research and development because
its geographic structure gave most control to the foreign divisions. As Japanese
companies successfully pursued their low-cost global strategies, Motorola's markets
were threatened by its high costs and disjointed efforts at product development.
Motorola's answer to the Japanese challenge was to restructure, to change to a
global matrix structure that organises the company's businesses by product group and by
region. Now, three regions in co-operation with three product groups make investment
and product development decisions, and Motorola's skills and resources are co-ordinated
globally. Each region has the primary responsibility for the research and development of
particular product technologies. Motorola's U.S. product group, for example, has overall
control of cellular phone technology. All operational decisions, however, are handled
locally at the country and plant level.
Twice a year, six representatives – one from each region and one from each
product group – meet to plan Motorola's product development strategy for the next six
months. To facilitate their efforts, Motorola exploits its organizational skills in cellular
communications to quicken and increase the transfer of information around the matrix,
thus improving coordination between product group managers and regional managers.
The global matrix structure has produced some significant benefits. It has allowed
Motorola to reduce costs by locating its manufacturing and input activities in low-cost
countries. It has enabled Motorola to make better use of its resources and create a
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differentiation advantage. Motorola now can match any Japanese challenge in cellular
phone technology and semiconductors. Moreover, the global network produced by the
global matrix structure has allowed Motorola to exploit the advantages of global
learning. The company has imitated and improved upon Japanese lean manufacturing
techniques and has become a global low-cost producer in its own right. Its efforts have
been rewarded: Its stock price has skyrocketed in the 1990s and it has become a major
global player in the telecommunications industry.
Source: Jones G. R. Organizational Theory: Text and Cases, 2nd ed. – Reading,
MA: Addison-Wesley Publishing Company, 1998. – Pp. 339-340.
1.3. Royal Dutch Shell
Royal Dutch Shell represents an interesting enigma. On the one hand, it is one of
the world's most profitable firms and invariably provides its investors with one of the
highest returns in the petroleum industry. On the other hand, its senior managers have
concluded that the firm needs a major overhaul if it is to remain competitive.
Like Unilever, Royal Dutch Shell is headquartered in two countries. Londonbased Shell Transport & Trading owns 40 percent of the firm, while Royal Dutch
Petroleum, based in The Hague, controls 60 percent. Overall, the company has over
100,000 employees, owns 54 refineries and 47,000 gasoline stations, and operates in
130 countries.
Royal Dutch Shell has traditionally been very decentralised. Its two headquarters
together comprise an entity called – oddly enough – the Centre. Executives at the Centre
co-ordinate a network of global shared services such as research and planning. But the
firm's 100 or so operating companies have been almost totally independent in terms of
how they manage their operations.
Each one is led by a CEO and virtually all have their own boards of directors.
Each local business built up such strong local ties over the years that many saw their
counterparts in other countries as competitors rather than allies. And a long history had
created a culture whereby loyalty to the local operating company was more valued and
rewarded than loyalty to the parent firm.
In 1994, Royal Dutch Shell's CEO, Cornelius Herkstroter, became concerned that
the firm was not performing up to its true potential. To figure out why, he assembled the
company's top fifty managers for a meeting. Amazingly, while several of these managers
knew one another, they had never before been assembled in one place for a meeting.
Almost from the beginning of the meeting, Herkstroter realised that the problems
were more severe than he had feared. The Centre, for example, had gradually been taken
over by risk-averse bureaucrats who took months to approve the budgets of the
operating companies. And the operating companies were not performing efficiently and
were highly inconsistent in their profitability. Herkstroter decided that he had to shake
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things up if Royal Dutch Shell was to maintain its lofty position in the petroleum
industry.
His first step was to reduce the staff at the Centre by 30 percent. He then
consolidated power at corporate headquarters into five basic oversight committees that
were given global responsibilities for exploration and production, oil products, gas and
coal, chemicals, and central staff functions such as the human resources and legal
departments. Meanwhile, the operating companies' control and power in these areas
were substantially reduced.
At first, the operating company CEOs rebelled at what they saw as a reduction in
their influence. And several left the firm. But those who stayed began to see the benefits
of this new way of doing things. For example, Royal Dutch/Shell is now able to use its
massive size to buy things like gasoline additives for prices significantly lower than
those paid by the various individual operating companies acting alone.
Herkstroter's next move was to change Royal Dutch Shell's corporate culture. This
culture was previously tied to entitlements based on seniority, educational background,
and personal contacts. Herkstroter, however, believed that to remain competitive the
firm needed to focus more attention on rewarding performance, fostering creativity and
innovation, and being flexible and responsive. People throughout the firm also needed
to recognise the value of working together and develop loyalties to the parent company.
To enact these changes, the CEO has relied heavily on outside consultants. Using
techniques ranging from team-building exercises to personality assessment scales,
managers at Royal Dutch Shell are becoming more focused on interpersonal relations
and the advantages of teamwork. Of course, a culture change of this magnitude is a big
project, and the experts believe that it will take several more years before the work is
done.
1.4. ABB
Asea Brown Boveri Ltd. (ABB) is a global maker of electrical systems and
equipment headquartered in Zurich, Switzerland. The company was founded in 1987
when the Swedish firm Asea merged with the Swiss company Brown Boveri. At the
outset the merged company consolidated operations based on layoffs, plant closings and
product exchanges between countries. The company also expanded through acquisitions.
The company is organised in a way that combines global scale and world technology
with emphasis on local markets. The overall ABB management philosophy applied
world-wide is: Think global, but act local.
ABB is one of the world's largest electro technical corporations with annual
revenues exceeding $30 billion. (34th position among European companies). 1300
companies of ABB operate in 140 countries. More than 200,000 people are employed
world-wide.
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ABB is a global organisation of much business diversity. ABB makes power
generation and transmission equipment, environmental control systems, factory
automation and railway rolling stock. However, the organising principles of ABB are
simple. Along one dimension. The company is a distributed global network. Executives
around the world make decisions on product strategy and performance without regard
for national borders. Along a second dimension, it is a collection of traditionally
organised companies, each serving its home market as effectively as possible. ABB's
global matrix holds the two dimensions together.
The group has deep roots in many countries. It respects national differences and
cultures, and aims to achieve a strong local identity in each of its many home markets.
At the same time, ABB strives to develop a global corporate culture for all members of
its multinational teams. One key element is having a common language: English was
chosen at the outset, although a minority of the over 200,000 employees have English as
their mother tongue. ABB's currency for global reporting and consolidation is the US
dollar.
Thus, the ABB's organisational principles allow the corporation to be committed
to industrial and ecological efficiency world-wide. ABB transfers technology and knowhow across borders with ease. But in each country, ABB operations are local and
flexible.
Mr. Percy Barnevik, the founder and the first CEO of ABB, was a person who was
continually at the focus of media attention and openly offered information about his
company's strategy. In the middle of 1990s, the ABB's supervisory board was an eightman executive committee made up of German, Swedish, Swiss, American, and Danish
executives. The group, which meets every three weeks in various countries, is
responsible for ABB's corporate-level global strategy and performance.
At group headquarters some 150 people represent more than 20 nationalities.
Barnevik underlined that competence is the key selection criterion, not passport.
Reporting to the executive committee are leaders of the 50 or so business areas
(BAs), located world-wide, into which the company's products and services are divided.
Everyone of these leaders manages a team of local managers, each with responsibilities
for day-to-day operations in a different country. The BAs are grouped into eight
business (product) segments, for which different members of the executive committee
are responsible.
For example, the 'industry' segment, which sells components, systems, and
software to automate industrial processes, has five Bas, including metallurgy, drives,
and process engineering. The BA leaders report to Gerhard Schulmeyer, a German
member of the executive committee who works out of Stamford, Connecticut.
Each BA has a leader responsible for optimising the business on a global basis.
The BA leader devises and implements a global strategy, holds factories around the
world to cost and quality standards, allocates export markets to each factory, and shares
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expertise by rotating people across borders, creating mixed-nationality teams to solve
problems, and build a culture of trust and communication.
The BA leader for power transformers, who is responsible for 25 factories in 16
countries, is a Swede who works out of Mannheim, Germany. The BA leader for
instrumentation is British. The BA leader for electric metering is an American based in
North Carolina.
ABB's operations in the developed world are organised as national enterprises
with presidents, balance sheets, income statements, and career ladders.
In Germany, for example, Asea Brown Boveri Aktiengeselleschaft, ABB's national
company, employs 36,000 people and generates annual revenues of more than $4
billion. The managing director of ABB Germany, Eberhard von Koerber, plays a role
comparable with that of a traditional German CEO. He reports to a supervisory board
whose members include German bank representatives and trade union officials. His
company produces financial statements comparable with those from any other German
company and participates fully in the German apprenticeship programme.
The BA structure meets the national structure at the level of ABB's member
companies. Percy Barnevik advocates strict decentralisation. Whenever possible, ABB
creates separate companies to do the work of the 50 business areas in different countries.
Norway has an ABB robotics company charged with manufacturing robots,
selling to and servicing domestic customers, and exporting to markets allocated by the
BA leader.
There are 1300 such local companies around the world. Their presidents report to
two bosses; the BA leader, who is usually located outside the country, and the president
of the national company of which the local company is a subsidiary.
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2. International Manufacturing and Technology
Management
2.1. Hewlett-Packard in Singapore
In the late 1960s, Hewlett-Packard company was looking around Asia for a lowcost location to produce electronic components that were to be manufactured using
labour-intensive processes. The company looked at several Asian locations but
eventually settled on Singapore, opening its first factory there in 1970. Although
Singapore did not have the lowest labour costs in the region, costs were low relative to
North America. Plus, the Singapore location had several important benefits that could
not be found at many other locations in Asia. The education level of the local work force
was high. English was widely spoken. The government of Singapore seemed stable and
committed to economic development, and the city-state had one of the better-developed
infrastructures in the region, including good communications and transportation
networks and a rapidly developing industrial and commercial base. HP also extracted
favourable terms from the Singapore government with regard to taxes, tariffs, and
subsidies.
To begin with, the plant manufactured only basic components. The combination of
low labour costs and a favourable tax regime helped to make this plant profitable early.
In 1973, HP transferred the manufacture of one of its basic handheld calculators from
the United States to Singapore. The objective was to reduce manufacturing costs, which
the Singapore factory was quickly able to do. Increasingly confident in the capability of
the Singapore factory to handle entire products, as opposed to just components, HP's
management transferred other products to Singapore over the next few years including
keyboards, solid-state displays, and integrated circuits. However, all of these products
were still designed, developed, and initially produced in the United States.
The plant's status shifted in the early 1980s when HP embarked on a world-wide
campaign to boost product quality and reduce costs. HP transferred the production of its
HP41C handheld calculator to Singapore. The managers at the Singapore plant were
given the goal of substantially reducing manufacturing costs. They argued that this could
be achieved only if they were allowed to redesign the product so it could be
manufactured at a lower overall cost. HP's central management agreed, and 20 engineers
from the Singapore facility were transferred to the United States for one year to learn
how to design application-specific integrated circuits. They then brought this expertise
back to Singapore and set about redesigning the HP41 C.
The results were a huge success. By redesigning the product, the Singapore
engineers reduced manufacturing costs for the HP41C by 50 percent. Using this newly
acquired capability for product design, the |Singapore facility then set about redesigning
other products it produced. HP's corporate managers were so impressed with the
progress made at the factory, they transferred production of the entire calculator line to
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Singapore in 1983. This was followed by the partial transfer of ink-jet production to
Singapore in 1984 and keyboard production in 1986. In all cases, the facility redesigned
the products and often reduced unit manufacturing costs by more than 30 percent. The
initial development and design of all these products, however, still occurred in the
United States.
In the late 1980s and early 1990s, the Singapore plant started to take on added
responsibilities, particularly in the ink-jet printer business. In 1990, the factory was
given the job of redesigning an HP ink-jet printer for the Japanese market. Although the
initial product redesign was a market failure, the managers at Singapore pushed to be
allowed to try again, and in 1991 they were given the job of redesigning HP's DeskJet
505 printer for the Japanese market. This time the redesigned product was a success,
garnering significant sales in Japan. Emboldened by this success, the plant has
continued to take on additional design responsibilities. Today, it is viewed as a "lead
plant" within HP's global network, with primary responsibility not just for
manufacturing, but also for the development and design of a family of small ink-jet
printers targeted at the Asian market.
Sources: K. Ferdows, "Making the Most of Foreign Factories," Harvard Business
Review, March-April 1997, pp. 73–99; and "Hewlett-Packard: Singapore," Harvard
Business School, case # 694–035.
2.2. Boeing: Make-or-Buy Decisions
The Boeing Company is the world's largest manufacturer of commercial jet
aircraft with a 55 to 60 percent share of the global market. Despite its large market
share, in recent years Boeing has found it tough going competitively. The company's
problems are twofold. First, Boeing faces a very aggressive competitor in Europe's
Airbus Industrie. The dogfight between Boeing and Airbus for market share has enabled
major airlines to play the two companies off against each other in an attempt to bargain
down the price for commercial jet aircraft. Second, several of the world's major airlines
have gone through some very rough years during the 1990s, and many now lack the
financial resources required to purchase new aircraft. Instead, they are holding onto their
used aircraft for much longer than has typically been the case. Thus, while the typical
service life of a Boeing 737 was once reckoned to be about 15 years, many airlines are
now making the aircraft last as long as 25 years. This translates into lower orders for
new aircraft. Confronted with this new reality, Boeing has concluded that the only way
it can persuade cash-starved airlines to replace their used airliners with new aircraft is if
it prices very aggressively.
Thus, Boeing has had to face up to the fact that its ability to raise prices for
commercial jet aircraft, which was once quite strong, has now been severely limited.
Falling prices might even be the norm. If prices are under pressure, the only way Boeing
can continue to make a profit is if it also drives down its cost structure. With this in
mind, in the early part of the 1990s, Boeing undertook a company-wide review of its
make-or-buy decisions. The objective was to identify activities that could be outsourced
to subcontractors, both in the United States and abroad to drive down production costs.
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When making these decisions, Boeing applied a number of criteria. First, Boeing
looked at the basic economics of the outsourcing decision. The central issue here was
whether an activity could be performed more cost-effectively by an outside
manufacturer or by Boeing. Second, Boeing considered the strategic risk associated
with outsourcing an activity. Boeing decided that it would not outsource any activity
that it deemed to be part of its long-term competitive advantage. For example, the
company decided not to outsource the production of wings because it believed that
doing so might give away valuable technology to potential competitors. Third, Boeing
looked at the operational risk associated with outsourcing an activity. The basic
objective was to make sure Boeing did not become too dependent on a single outside
supplier for critical components. Boeing's philosophy is to hedge operational risk by
purchasing from two or more suppliers. Finally, Boeing considered whether it made
sense to outsource certain activities to a supplier in a given country to help secure orders
for commercial jet aircraft from that country. This practice is known as offsetting, and it
is common in many industries. For example, Boeing decided to outsource the
production of certain components to China. This decision was influenced by the fact that
current forecasts suggest the Chinese will purchase over $100 billion worth of
commercial jets over the next 20 years. Boeing's hope is that pushing some
subcontracting work China's way will help it gain а larger share of this market than its
global competitor, Airbus.
One of the first decisions to come out of this process was a decision to outsource
the production of insulation blankets for 737 and 757 aircraft to suppliers in Mexico.
Insulation blankets are wrapped around the inside of the fuselage of an aircraft to keep
the interior warm at high altitudes. Boeing has traditionally made these blankets inhouse, but it found that it can save $50 million per year by outsourcing production to a
Mexican supplier. In total, Boeing reckons that outsourcing cut its cost structure by
$500 million per year between 1994 and 1997. By the time the outsourcing is complete,
the amount of an aircraft that Boeing builds will have been reduced from 52 percent to
48 percent.
Source: Based on interviews between Charles Hill and senior management
personnel at Boeing.
2.3. General Motors Plant Construction
For years General Motors dabbled with the idea of becoming a truly global
business. While the firm exported its cars to several other countries for years and had a
few plants outside the United States, it remained predominantly a North American
enterprise. Just a few years ago, for example, 80 percent of the firm's vehicles were
made in North America. And cars made elsewhere were often retreads of older GM
models no longer in demand in its domestic market. GM's older South American plants,
for example, were still churning out Chevy Chevettes well into the 1990s.
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But all that has changed dramatically in recent years since GM has made a bold
and public commitment to becoming a global automaker. New products are being
designed and manufactured in other countries, and GM is striving aggressively to reach
a goal of having 50 percent of its capacity outside of North America. And at the centre
of this effort is an innovative approach to designing and manufacturing its automobiles
in the four corners of the world.
General Motors is essentially emulating its Japanese rival Toyota. Through a
series of partnerships and alliances, GM has gained important insights into the payoffs
that Toyota has achieved through its strategies of plant standardisation and lean
manufacturing. At Toyota, a change in a car being made in Japan can easily be
replicated throughout other Toyota plants around the world, and Toyota is the
acknowledged master and pioneer of cutting costs by managing parts inventory and
other aspects of its logistics more efficiently.
In contrast, U.S. automakers have traditionally designed each automobile factory
as a unique and autonomous facility. While this sometimes makes a given plant
especially productive – since it was designed for one specific purpose – it also
constrains flexibility and makes it more difficult to transfer new technologies and
methods between factories.
GM is now using Toyota's strategy in its newest factories. These factories are
located in Argentina, Poland, and China. (Completion of a fourth plant in Thailand has
been postponed because of the Asian currency crisis.) The plants look so much alike that
a visiting GM executive might forget which country she or he is in. This strategy allows
GM to launch global products, such as a new "world car," more easily. Equally as
important, if one factory develops a glitch or problem, it might easily be solved by
simply calling one of the others. Similarly, if a manager at one factory discovers a new
way of achieving a productivity gain, this information can be easily passed on and
implemented in the other factories.
GM's new factories have been designed with flexibility and efficiency in mind.
Each factory can be easily expanded should demand warrant higher production. Each is
constructed in a large "U" shape so that suppliers can deliver component parts and
accessories directly to the assembly lines, cutting down on warehouse costs and
improving productivity.
But while the plants are as similar to one another as possible, GM also found it
necessary to make adjustments in each to meet unique conditions in each country. In
China, for example, managing the plant's just-in-time inventory system will present
unique challenges, for suppliers will be delivering many parts on carts and bicycles due
to that country's poor road system. Despite such minor accommodations to local
conditions, GM nonetheless believes that its standardised plants will cut its production
costs substantially and allow it to succeed in the world's emerging markets.
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2.4. Li & Fung
Established in 1906, Hong Kong-based Li & Fung is now one of the largest
multinational trading companies in the developing world with annual sales of about $2
billion. The company, which is still run by the grandson of the founder, Victor Fung,
does not see itself as a traditional trading enterprise. Rather, it sees itself as an expert in
supply chain management for its 350 or so customers. These customers are a diverse
group and include clothing retailers and consumer electronics companies. Li & Fung
takes orders from customers and then sifts through its network of 7,000 independent
suppliers located in 26 countries to find the right manufacturing enterprises to produce
the product for customers at the most attractive combination of cost and quality.
Attaining this goal frequently requires Li & Fung to break up the value chain and
disperse different productive activities to manufacturers located in different countries
depending on an assessment of factors such as labour costs, trade barriers, transportation
costs, and so on. Li & Fung then co-ordinates the whole process, managing the logistics
and arranging for the shipment of the finished product to the customer.
Typical of its customers is The Limited, Inc., a large US-based chain of retail
clothing stores. The Limited out-sources much of its manufacturing and logistics
functions to Li & Fung. The process starts when The Limited comes to Li & Fung with
designer sketches of clothes for the next fashion season. Li & Fung takes the basic
product concepts and researches the market to find the right kind of yarn, dye, buttons,
and so on, then assembles these into prototypes that The Limited can inspect. Once The
Limited has settled on a prototype, it will give Li & Fung an order and ask for delivery
within five weeks. The short time between an order and requested delivery is
necessitated by the rapid rate of product obsolescence in the fashion clothing industry
(personal computer manufacturers also live with very compressed product life cycles).
With order in hand, Li & Fung distributes the various aspects of the overall
manufacturing process to different producers depending on their capabilities and costs.
For example, Li & Fung might decide to purchase yarn from a Korean company but
have it woven and dyed in Taiwan. So Li & Fung will arrange for the yarn to be picked
up from Korea and shipped to Taiwan. The Japanese might have the best zippers and
buttons, but they manufacture them mostly in China. So Li & Fung will go to YKK, a
big Japanese zipper manufacturer, and order the right zippers from their Chinese plants.
Then Li & Fung might decide that due to constraints imposed by export quotas and
labour costs, the best place to make the final garments might be in Thailand. So
everything will be shipped to Thailand. In addition, because The Limited, like many
retail customers, needs quick delivery, Li & Fung might divide the order across five
factories in Thailand. Five weeks after the order has been received, the garments will
arrive on the shelves of The Limited, all looking like they came from one factory, with
colours perfectly matched. The result is a product that may have a label that says "Made
in Thailand," but is a global product.
To better serve the needs of its customers, Li & Fung is divided into numerous
small, customer-focused divisions. There is a theme store division that serves a handful
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of customers such as Warner Brothers and Rainforest Café, there is a division for The
Limited, and another for Gymboree, a US-based children's clothing store. Walk into one
of these divisions, such as the Gymboree division, and you will see that every one of the
40 or so people in the division is focused solely on meeting Gymboree's needs. On every
desk is a computer with a direct software link to Gymboree. The staff is organised into
specialised teams in areas such as design, technical support, merchandising, raw
material purchasing, quality assurance, and shipping. These teams also have direct
electronic links to dedicated staff in Li & Fung's branch offices in various countries
where Gymboree buys in volume, such as China, Indonesia, and the Philippines. Thus,
Li & Fung uses information systems to manage, co-ordinate, and control the globally
dispersed design, production, and shipping process to ensure that the time between
receipt of an order and delivery is minimised, as are overall costs.
Sources: J. Magretta, "Fast, Global, and Entrepreneurial: Supply Chain
Management Hong Kong Style," Harvard Business Review, September-October 1998, p.
102-114; J. Ridding, "A Multinational Trading Group with Chinese Characteristics,"
Financial Times, November 7, 1997, p. 16; J. Ridding, "The Family in the Frame,"
Financial Times, October 28, 1996, p. 12; and J. Lo, Second Half Doubts Shadow Li &
Fung Strength in Interims," South China Morning Post, August 27,1998, p. 3.
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