you will conduct a buy-build-ally analysis of the company and recommend a strategy

In this assignment, you will conduct a buy-build-ally analysis of the company and recommend a strategy that the company can implement over the next five years to achieve the targeted growth.

Prompt

Perform a buy-build-ally analysis for your company and recommend actions the company can take to realize the identified opportunity within five years. Use resources such as the company website, which will have pertinent information including its most recent sustainability report, and other relevant sources to help complete this presentation. You can also use the resources in the

MBA Library Research Guide

to conduct further research about your company.

Create a Microsoft PowerPoint presentation to show the results of your analysis and present your recommendations. Use both on-slide text and narration or speaker notes in your PowerPoint slides to convey your information effectively. If narration is not possible, precise and extensive speaker notes should be used, while addressing all of the rubric elements in the presentation. For example, you can use brief, bulleted lists summarizing the highlights of your analysis on the slide and include more detailed explanations in your speaker notes.

Specifically, you must address the following rubric criteria:

Implementation strategy: Recommend an implementation strategy for your company.Determine whether the company will need to buy, build, or ally with another company. Consider the skills, facilities, products, and services the company will need to capitalize on the identified opportunity.Use the speaker notes of your presentation to explain the strategy behind your buy, build, and ally recommendations. Corporate Versus Business Unit Strategy
The tools of industry analysis, low cost or differentiation strategies, and innovation help managers devise
business unit strategy, or an approach for creating competitive advantage within a single industry,
market, or line of business. Cisco, when viewed as a collection or portfolio of businesses, competes in a
different, but related, way than its individual business units. Cisco managers have a clear corporate
strategy, or an approach for creating value and competitive advantages through participation in several
different industries and markets.
business unit strategy The search for competitive advantage within a single industry, market, or line of
business.
corporate strategy The search for value and competitive advantages through participation in several
different industries and markets.
Corporate strategy entails competing in a core industry or business and also operating in adjacent
businesses or markets. When those adjacent markets can be mapped along the value chain, then a firm
vertically integrates. For example, when Apple made the decision in the early 1980s to develop its own
computer operating system in-house, it vertically integrated backward by producing the inputs to its
computers. Vertical integration represents such an important and unique form of diversification that
Chapter 7 deals specifically with this topic.
vertical integration Movement into adjacent markets by a firm along its own value chain. Movement in
the direction of raw materials is backward integration. Movement in the direction of sales, service, or
warranty operations is forward integration.
When a firm moves to an adjacent business or enters a new industry value chain, it engages in horizontal
diversification, most commonly referred to simply as diversification. The adjacent market may mean
selling the firm’s existing products to new customer groups, bringing new products and services to
existing customers, or selling new products and services to new customers. Managers diversify their
firms through one of three methods: greenfield or organic entry, alliance, or acquisition. Alliances, like
vertical integration, present the firm with a unique set of opportunities and challenges, so we’ll discuss
them separately in Chapter 8. This chapter describes both greenfield entry and acquisition as
mechanisms of diversification.
horizontal diversification The movement into an adjacent market, one that is not along a firm’s current
value chain.
In this chapter, you’ll learn how companies can create value by competing in several industries instead of
just one, and how companies can diversify through greenfield entry or acquisition. Should a company
choose to diversify through acquisition, you’ll learn about the process of acquisition and understand how
tightly a newly acquired business should be integrated into the company.
Creating Value Through Diversification
Early research by strategy scholars into corporate diversification identified an inverted curvilinear (an
upside-down, U-shaped) relationship between corporate diversification and profitability. Firms that
compete in a few, related industries or markets outperform firms focused on a single industry. More is
not always better, however, because firms that compete in many, unrelated industries perform worse
than those in a few, related ones. A number of studies over the last three decades have come to the
same general conclusion: Moderate diversification pays off, but very high levels of diversification lead to
lower levels of performance.11
foreign direct investment Direct investment in production or business in one country by a business from
another country.
A line graph shows the global foreign direct investments from 1970 to 2016. The horizontal axis
represents the years from 1970 to 2016. The vertical axis denotes the amount in dollars, ranging from 0
to 2500000. The curve remains at 0 from 1970 to 1985, increasing gradually to 1500000 in 2000, and
ending at 1300000 in 2016 after a series of peaks and troughs. All data are approximate.
FIGURE 9.1 Global Foreign Direct Investments, 1970–2016 (in 2016 US. dollars)
Source: UNCTAD, Inward and outward foreign direct investment flows, annual, 1970–2016, and OECD FDI
in Figures, February 2017.
This trend toward increased international trade has allowed organizations to place parts of their value
chains in different countries, depending on where each part can generate the most value.
Manufacturing, as well as service industries, has become global. Trade in commercial services, such as
licensing and franchise fees, as well as other types of services such as financial, information, computing,
insurance, and consulting services has increased 272 percent just in the last decade, totaling more than
$4.8 trillion in 2015.10
What this means for strategy is that both production and the market for many products and services
aren’t national anymore—they’re regional (multiple countries) or global.11 For most industries, the
competition isn’t just local or national anymore, either—it’s also global, and key competitors may be
located in another country. Indeed, the World Trade Organization says that half of all the productive
wealth in the world is generated by multinational firms that compete with an international strategy.
multinational firms Firms that sell or produce in multiple countries.
Even for small companies, international strategy is often key to success. Of the more than 408,000 US
firms that competed across borders in 2014, 98 percent were small to medium-sized firms.12 Companies
with effective international strategies tend to dominate both at home and throughout the world. Most
organizations that hope to be leaders in their industry realize that they have to compete on a global
scale.13 Indeed, for many companies, even basic survival is predicated on a clear understanding of
international strategy.
Of course, competing on a global stage isn’t just about protecting oneself from foreign competition. It
also opens up tremendous new opportunities,14 but these new opportunities come with an exponential
increase in complexity. Just ask the top management team at Huawei as it looks to successfully compete
in the United States. Some of the differences between countries that increase complexity and affect the
success of international strategies include variations in:
Customer tastes, needs, and income levels
Government regulations
Legal systems
Public tolerance for foreign firms
Reliability, and even existence, of basic infrastructure, such as roads and electricity
Strength of supporting industries, including distribution channels to customers
This chapter addresses the complexity of international strategy by answering three questions strategists
ask when thinking about going international:
Why should we go international? What specific cost or revenue advantages might we gain?
Where should we expand? Of all the countries we could enter, which are the right ones?
How should we expand? What international strategy should we employ? How can we tell if we have the
right one? And, what strategic options do we have for entering a foreign country?
One thing to keep in mind as you read this chapter is that many of the concepts actually apply to
geographic expansion within a country as well as international expansion. We focus the chapter on
international expansion because the complex issues behind a successful expansion strategy are
magnified exponentially when you cross international borders.
Why Firms Expand Internationally
There are a number of reasons why firms choose to compete in international markets. These include
increasing sales to grow the company beyond what the home market can offer, becoming more efficient
(raising profits by lowering costs), managing risks better, learning from consumers in other markets, and
responding to the globalization moves of other firms.
globalization The spread of businesses across national borders.
Growth
The need to grow sales is one of the biggest reasons that firms expand internationally.15 Some firms
have saturated their home markets, and entering foreign markets is the only way for them to sustain
growth. This is one of the primary reasons that Harley-Davidson started selling in foreign markets. It now
sells in Europe as well as Asia and the Middle East. Figure 9.2 shows just how important that foreign
expansion has been. When unit sales in the US market have softened, sales overseas have continued to
grow, mitigating Harley-Davidson’s flat to declining sales in the US market.
A bar graph and a line graph shows the unit sales and percentage of unit sales of Harley-Davidson in the
U.S. and foreign. The bar graph compares unit sales of Harley-Davidson in 2008 and 2016 in the U.S. and
foreign. The horizontal axis represents the years from 2008 to 2016, and the vertical axis represents the
unit sales, ranging from 0 to 250000. The data for U.S. sales is as following: 2008, 210000; 2009, 148000;
2010, 135000; 2011, 150000; 2012, 160000; 2013, 165000; 2014, 170000; 2015, 168000; 2016 est.,
160000. The data for Foreign sales is as following: 2008, 99000; 2009, 75000; 2010, 75000; 2011, 76000;
2012, 80000; 2013, 95000; 2014, 98000; 2015, 98000; 2016 est., 100000. The line graph compares the
percentage of change in the unit sales of Harley-Davidson in the U.S. and Foreign. The horizontal axis
represents the years from 2009 to 2016. The vertical axis represents percentage of change in unit sales,
ranging from negative 35 to positive 20. The curve for US change percentage shows a sharp rise from
negative 30 percent between 2009 and 2010 to positive 15 percent in 2011, it further gradually slopes
between positive 5 percent and positive 4 percent from 2012 to 2014, then reducing to negative 5
percent in 2016. The curve for foreign change of interest shows an increase from negative 20 percent in
2009 to 0 percent in 2010, further increasing to positive 6 percent in 2013, then decreasing to 0 percent
in 2015, and ending at positive 5 percent in 2016. All data are approximate.
FIGURE 9.2 Harley-Davidson US and Foreign Sales, 2008–2016
Source: (1) Anonymous, “Harley-Davidson Is Taking Steps to Reverse Its Declining Sales Trends,” Forbes
(December 9, 2015).
(2) Anonymous, “Harley-Davidson Reports Fourth Quarter and Full-Year 2015 Results,” PRNewswire
(January 28, 2016).
(3) Anonymous, “Tough Times Ahead in the Domestic Market,” Forbes (September 13, 2016).
Efficiency
Many firms enter additional markets in order to become more efficient. Efficiency takes a number of
forms, including obtaining lower-cost resources, extending the lifespan of products, and achieving
economies of scale and scope.
Lower-Cost Resources
In many cases, key resources may be cheaper in foreign countries. One of the most common resources
firms seek abroad is low-cost labor, which is often referred to by the buzzwords offshoring or
outsourcing. Firms may also expand abroad in search of lower-cost sources of raw materials.16 For
example, the United States is seeing an increase in foreign companies opening new plants in the United
States to take advantage of cheap natural gas made available through hydraulic fracturing technology,
known as fracking.
Beyond looking at the price of a particular resource, though, companies also have to take into account
factors that might increase the cost to use the resource, including labor productivity, and the
transportation and communication costs needed to acquire the resource. Moreover, companies must
also consider a variety of other costs of doing business in a particular country, such as regulations and
the challenges of managing in a different culture. Companies tend to seek an optimal location for
expansion, not just the one with the lowest cost resources. For instance, although sub-Saharan Africa
has the cheapest labor in the world, China’s abundance of relatively skilled and productive cheap labor,
coupled with excellent communications and transportation infrastructure and a relatively stable political
climate, made it the country of choice for many firms for decades. Then China’s labor costs began to rise,
and countries in Southeast Asia began to develop sufficient infrastructure with labor cheaper than
China’s, making that region more attractive as a place to do business.
Longer Product Life
Sometimes firms enter foreign countries to extend a product’s life cycle, leveraging their investment in
assets and equipment.17 For example, in Chapter 2 we introduced the plight of Nokia, a one-time world
leader in the cell phone industry. Although Nokia’s cell phone business, now a subsidiary of Microsoft, is
no longer the world’s leading manufacturer of cell phones and smartphones, the company continues to
generate substantial revenue by selling its older-model phones in Africa, the Middle East, and Southeast
Asia.
product life cycle The stages a product or service goes through during its lifespan.
In addition to leveraging prior investments in their products, firms can also leverage their capabilities. As
discussed in Chapter 3, capabilities that generate competitive advantage for firms typically are difficult
and costly to build. Some firms try to leverage their investments in building capabilities by using those
capabilities in multiple countries.18 Fast-food restaurants such as McDonald’s are masters of this
technique.19 Manufacturing firms can also gain efficiencies from leveraging their capabilities. Toyota, for
instance, has been quite successful in implementing the Toyota Production System in its US auto plants,
helping to keep its costs lower than those of rivals GM and Ford.
Economies of Scale and Scope
Another critical source of efficiency that firms seek to gain by going international is economies of scale,
whether they come in manufacturing, R&D, or sourcing.20 Recall from Chapter 4 that economies of scale
occur when firms are able to spread the costs of investments in plant, equipment, or knowledge across
many sales. As firms compete in foreign markets, they increase the number of units sold, sometimes
radically, possibly reaping greater economies of scale.
Related to efficiencies gained through economies of scale are economies of scope. Competing in multiple
markets allows firms to spread their costs across more units in multiple product categories. For example,
Unilever, a Dutch company, takes advantage of economies of scope by globally selling and distributing,
products as diverse as food products, such as ketchup, noodles, salt, flour, and tea, and personal
products, such as soap and shampoo—all things one can buy at a supermarket. Economies of scale and
economies of scope, indeed. Unilever lowers its costs of distributing these products because they can be
stored and shipped from the same warehouses using the same logistics systems.
Managing Risk
Operating in more than one country can also provide firms with a measure of protection against disaster,
both economic and natural.21 Even when there are worldwide economic downturns, such as during the
period from 2007 to 2012, problems are not usually spread evenly across all countries. During that
period, the United States and the European Union fell into recession, while China continued to grow at a
fairly rapid pace. When firms have sales in multiple countries, a slowdown in one country may be offset
by continued sales in another. For instance, many observers thought that General Motors would lose a
good portion of its market share in 2007, when the US market for automobiles collapsed. However,
within a short time, GM had actually increased its worldwide market share, regaining the title of the
largest auto company based mostly on sales growth in China.
The same principle works for other types of disasters, such as natural disasters or social upheaval. If
firms have operations in multiple locations they may be able to relocate production or increase sales in
another country to make up for the shortfall in the area where the disaster occurred.
Knowledge
Another reason for expanding into other countries is to acquire valuable knowledge, the basis for
innovation. When a firm sells in different countries, to people with different tastes and needs, it often
gains new insights about its products and services. Serving multiple types of customers can help a firm to
identify unmet needs in multiple markets. Those insights can be valuable for increasing sales in many
locations. Gathering information from customers in multiple countries can also help organizations more
easily identify changes in customer needs, making it more likely that they will be at the forefront of the
next big innovation in their industry. Research suggests that generating more knowledge may be the
greatest advantage a multinational organization has over purely domestic companies.22
As an example, GE’s Healthcare division developed an inexpensive, portable ultrasound machine to serve
the rural Chinese market, where health-care providers couldn’t afford GE’s large, expensive ones. GE
realized that there were also markets for an inexpensive, portable ultrasound machine in Europe and the
United States, specifically with first responders who don’t have space in ambulances and fire trucks for
large ultrasound machines. GE now sells the product in all of its markets.
Companies can generate knowledge not only from diverse customers but also from their own units in
different locations. For instance, Europe has higher energy costs than the United States does. US firms
that operate in Europe have been learning how to save energy costs more rapidly than those that aren’t
in Europe.
Responding to Customers or Competitors
Last, but not least, firms may expand internationally in response to either customers or competitors. This
is particularly true of business-to-business (B2B) firms that perform intermediate steps of the value chain
for large customers.23 For example, the “Big 4” accounting firms—Deloitte Touche Tohmatsu, Ernst &
Young, KPMG, and PricewaterhouseCoopers—have all expanded globally to better serve their largest
clients, who are multinationals with operations around the globe. Indeed, sometimes customers demand
that their suppliers go international when they do.
Sometimes firms feel compelled to go global because their rivals do. If the rivals gain any of the
advantages previously discussed, they may use those advantages to subsidize aggressive sales and
marketing campaigns in the home markets of their competitors.24 If a firm doesn’t expand to replicate
those advantages, it may be at a distinct disadvantage. This is one of the primary reasons that Lincoln
Electric, a manufacturer of arc-welding products, expanded abroad—to respond to ESAB, a Swedish
welding company, that had just entered the United States. That is also true of Harley-Davidson. It had to
aggressively pursue international expansion because part of its decline in domestic sales came at the
hands of foreign competitors like Honda. Better to force your competition to compete in its home market
as well than to let it gain international economies of scale and beat you without having to fight on
multiple fronts.
Where Firms Should Expand
After a firm has decided to go international, the next question it must answer is where to expand. The
easiest answer is to enter the country with the largest number of potential customers—often, a country
with a huge population, such as China or India. However, wise managers also think about how likely they
are to succeed in a particular foreign market. After all, the word foreign means different, and different
can be difficult to get right. Research on the risks of international expansion refers to this as the liability
of foreignness.
Successful international expansion requires a clear understanding of the possible risks. Some risks are
market driven—will foreign customers buy your products at the same rate as your home country
customers? Will distribution work the same way, or will it cost more to get products to the end
customer?
Other risks are political. Sometimes foreign governments enact policies that place additional burdens on
foreign firms, such as tariffs that increase the cost of foreign products, laws requiring a certain
percentage of each product be made in the foreign country or a certain percentage of managers be
locals, or laws prohibiting foreign ownership of local firms. Other burdens come from the uneven
application of local laws. For instance, in some countries it is difficult for foreign firms to protect their
intellectual property as local courts may side primarily with local firms. And sometimes nationalistic
sentiment leads governments to threaten foreign firms with additional tariffs, lawsuits in both local and
world courts (such as the World Trade Organization), inspections and fines not levied against local firms,
and even seizure of plants and equipment. Companies entering foreign markets need to be well aware of
the possibility of government action.
Finally, other risks are economic in nature. Not all markets are equally stable. Some countries are more
susceptible to economic recessions, directly affecting the bottom line of the firms selling in those
markets. Foreign countries may also be susceptible to monetary crises, where the value of the local
currency fluctuates wildly as shown in Figure 9.3. The currencies of some countries, even when not in
crisis, may fluctuate significantly compared to the US dollar. This can create an adverse exchange rate.
This matters because a firm selling in a foreign market earns profit in that market’s currency, and those
producing in a foreign country buy goods and pay labor in the local currency. If that currency fluctuates,
the costs and profits, when transferred back into the home currency, fluctuate as well. This can make a
significant difference in how competitive a firm is. If the exchange rate is favorable, they can lower their
prices and steal market share from other firms. If the exchange rate is not favorable, the opposite can
happen. In fact, this is one of the reasons that Harley-Davidson’s domestic sales started to slump in late
2014 through 2017. As Figure 9.3 shows, the dollar strengthened considerably against the euro during
that time. That means that European companies wanting to sell in the United States could suddenly do it
much more cheaply than they could before, increasing the competition for Harley-Davidson products in
its home market.
A graph shows the exchange rate of U S dollars versus European Euro. The horizontal axis shows the
years from 2013 to 2017. The vertical axis shows the exchange rate values ranging from 0 point 6 0 to 1.
The exchange rate of U.S. dollar curve starts at 0 point 8 2 in 2012, reducing to 0 point 7 8 in 2013. The
rate further reduces to 0 point 7 2 in 2014, and gradually increasing to 0 point 9 5 in 2015, and 0 point 9
1 in 2016, finally ending at 0 point 9 5 in 2017. All data are approximate.
FIGURE 9.3 Exchange Rate of US Dollar vs. European Euro, 2012–2017
Source: XE Corporation, https://www.xe.com/currencycharts/?from=USD&to=EUR&view=5Y, accessed
March 20, 2017.
Organizations considering international expansion need to carefully consider the market, political, and
economic risks of each country they are thinking about entering. Since companies want to do business in
the countries where they are most likely to succeed, that means choosing locations that have the lowest
risks. Another way to think about managing the risk of expansion is to consider the distance between
countries. Even though transportation and communication have advanced to the point where firms can
realistically do business in nearly every country on the planet, the distance between countries still
matters. In addition to geographic distance, there are three other kinds of distance that managers should
consider when undertaking international expansion: cultural, administrative, and economic distances.25
A useful mnemonic for remembering the four types of distance is CAGE—cultural, administrative,
geographic, and economic.26
Even if there are a lot of potential customers, a country might not be the right one to enter if the
likelihood of success is low because of greater distance. The lower the distance determined by a CAGE
analysis, with an emphasis on the distance that most affects your specific industry, the greater the
likelihood of a successful expansion.
Cultural Distance
Cultural distance refers to differences in language and culture, the way people live and think about the
world. People in another country might hold different beliefs about a host of significant issues, including
how people should interact and how business should be conducted. They might have very different
worldviews about human nature and the role of individuals and companies in society. All of these can
add up to a very foreign environment that makes it difficult for firms to understand their customers and
local employees.
cultural distance The degree of difference between the cultures of two nations.
Although it’s only one aspect of culture, the issue of language is influential. Firms are 42 percent less
likely to do business in a country with a different language.28 Language differences are relatively easy to
fix, but potential problems increase rapidly when companies move into countries with deeper, more
difficult to overcome types of cultural distance. These may include differences in:
Religion
Ethnicity
Trust for outsiders29
How genders are expected to behave
The degree to which the culture is focused on individuality or collective action
How people accept ambiguity or follow rules and laws
The degree to which people allow abuses of political or market power30
Many of these types of cultural differences can be subtle but still have a significant impact on consumer
behavior and shape the market demand for foreign products.
Not all industries are affected the same way by cultural distance. Firms that sell commodity products,
such as corn, wheat, oil, or cement, don’t tend to have difficulty with cultural distance. However, firms
with products that have high linguistic content, such as TV shows, movies, music, and even textbooks,
have to be careful. Likewise, products that affect how people see themselves, such as food and clothing,
are affected by cultural distance. This is particularly true if those products clash with religious or national
identities. It is difficult to sell pork products in the Middle East, as pork is forbidden in both Judaism and
Islam. Other products might not directly clash with religion, but they might not match cultural norms.
For instance, in Germany parents have a tendency to prefer well-crafted, wooden toys for their children.
Firms that focus on less-expensive plastic toys do much better in markets such as the United States.
Sometimes, however, cultural distance can be a selling point for multinationals. For instance, in Russia,
foreign products are often seen as superior to local ones. Likewise, being associated with a particular
country can sometimes increase sales of a product worldwide, as is the case for German luxury
automobiles, Italian fashion, and US fast food.
Administrative Distance
Administrative distance refers to differences in the legal, political, and regulatory institutions between
countries. For example, are laws and government policies similar or different between two countries?
This is important for firms because understanding the political and legal environment is often a key to
success in a foreign country.
administrative distance The degree of differences between the legal and regulatory frameworks of two
nations.
You can have the best product or service at the cheapest price, but if you don’t understand how
contracts will be enforced or how local and national policies apply to foreign firms, you may fail.
Administrative distance often causes challenges for US firms in industrialized nations such as France
(which relies on a different legal system than the United States and the United Kingdom), but it can
become bewildering in many emerging and Third World markets, where regulations and laws may be
applied capriciously.
Low administrative distance can increase the rate of entry by foreign firms into a country by as much as
300 percent.32 Administrative distance is low among countries that (1) use the same legal system, such
as the common law system used in the Anglo sphere (the United Kingdom and its former colonies,
including the United States, Canada, Australia, and India); (2) used to be part of a colonizer/colony
network, such as some European countries and their former African colonies; (3) use the same currency;
or (4) are part of the same trading bloc, such as NAFTA in North America or the European Union.
Industries most directly affected by administrative distance are those in which governments are most
likely to have a stake. This includes industries that provide equipment or services critical to national
security, such as providers of steel or telecommunications; those that employ large numbers of people;
those that serve government directly, such as mass-transportation equipment manufacturers; those that
extract natural resources; and those that produce staple goods that most people buy, such as rice in
Thailand or corn in Mexico. A specific firm might also confront increased administrative distance if it
competes head-to-head with a local champion, a local firm that government sees as important to its
future, such as Airbus, the EU airplane manufacturer, or Gazprom, the Russian state-owned natural gas
firm.
Geographic Distance
At its most basic, geographic distance refers to how many miles separate two countries. Companies are
more likely to succeed in nearby countries, because physical proximity lowers both transportation and
communication costs. That’s one reason most US companies expand first to Canada and Mexico. Even
with fast air travel and consistent, reliable container shipping, research suggests that for each 1 percent
increase in the distance between countries there is a 1 percent decrease in the number of foreign firms
selling in those countries.33 Clearly, miles still matter.
geographic distance The distance in miles, or kilometers, between two countries.
In addition to the actual physical distance between countries, however, geographic distance is also
influenced by how easy it is to travel between countries. For instance, firms enter countries with
seaports much more frequently than they expand to landlocked nations. Companies are also more likely
to enter countries with good transportation infrastructure. For most firms, geographic distance increases
the cost of managing daily operations and coordinating activities. Despite the availability of instant
communications and video conferencing, many overseas operations require hands-on help from
headquarters. When those operations are many hours away from headquarters by plane, the
communication and transportation costs start to add up.
Not all industries are affected the same way by geographic distance. Firms, such as Google, that sell
electronic products that can be transmitted to the other side of the world in fractions of a second at
almost no cost don’t have to worry as much about geographic distance as firms that sell heavy, bulky
products such as finished computers. That is one reason that companies such as Dell buy their parts
from all over the world but then put them together near their target markets. Other industries that are
heavily affected by geographic distance are those that sell fragile products that might be damaged in
transport, or perishable products, such as fresh-cut flowers, that must be transported rapidly. Even for
Google, however, the need to oversee operations means that the company must set up local offices in
some countries, such as Russia, because the product still needs to be localized (if only for language and
currency reasons) and constant travel from California is too unwieldy.
Economic Distance
Economic distance refers primarily to differences in the average income of customers in two countries,
usually measured as per capita GDP (gross domestic product). Firms from wealthy nations tend to
expand to other wealthy nations because the customers there earn enough income to buy similar
products. This is clearly true for expensive products such as cars or home appliances but is also true of a
wide variety of products that wealthier customers tend to think of as inexpensive, such as laundry
detergent or snack food (see the Strategy in Practice for an example).
economic distance The degree of difference between the average income of people in two different
countries.
The industries most affected by economic distance are those for which the demand for products is very
elastic—meaning demand changes dramatically as prices go up or down. In these types of industries,
demand is significantly affected by customers’ purchasing power and the ability of producers to lower
prices.
Strategy in Practice
How Unilever Manages Economic Distance in Rural India
Laundry soap isn’t something that most of us give much thought to. We can buy it in small boxes or giant
packages, but no matter how we buy it, the cost per use is small enough that few in Organization for
Economic Co-operation and Development (OECD) countries give it much thought. The same is not true in
other places around the world. While India has been making great strides, it still has millions of people
who live on less than $2 a day. At that wage no one can afford to buy a box of laundry detergent, not
even the generic brand. So if you are a manufacturer of laundry soap, how do you reach these
customers? After all, they represent nearly 750 million people worldwide.34 That is not a customer
segment you want to ignore.
Unilever, in a joint venture with an Indian firm called Hindustan Unilever Limited, has figured out how to
bridge that economic distance and sell to the poorest of the poor in India. They call the approach Project
Shakti, which means Project Strength. They first had to learn how to break their product down into the
smallest possible packages and figure out how to reduce manufacturing costs. The big problem,
however, was how to deal with distribution. While many poor live in the big cities and can be serviced by
the more than 1.5 million small retail outlets that Hindustan Unilever operates, the vast majority live in
rural villages, with little to no infrastructure connecting them.35
Hindustan Unilever’s response to the distribution problem was to create Shakti Ammas in the rural
villages. Many of these villages had developed women’s self-help groups where women counseled each
other and pooled their money to help each other financially. Combined with micro-loans, Hindustan
Unilever created a direct sales force of women in thousands of rural villages. Each woman sold to her
own village, as well as smaller ones nearby. Most of these women have been successful enough that
they have been able to double their family’s income. To date Hindustan Unilever has nearly 70,000 Shakti
Ammas reaching more than 162,000 rural villages and 4 million rural households with a variety of
household products beyond laundry soap that have been manufactured to meet the budget of the
poorest of the poor. It has been successful enough that Hindustan Unilever has expanded the project to
include husbands of Shakti Ammas, called Shaktimaans, who can reach villages farther away than their
wives. There are now 48,000 Shaktimaans.36 The impact of this program on the poorest in India is
striking. The head of the Project Shakti, Sharat Dhall, called it “the biggest rural operation in the history
of India.”37
How Firms Compete Internationally
As companies expand internationally, they often find themselves torn by two competing pressures.38
The first pressure is toward local responsiveness, the need to tailor their products, marketing, and
distribution strategies to the local customers in a foreign country. For instance, Coca-Cola isn’t the same
in every country. In fact, Coca-Cola demonstrates its responsiveness by manufacturing more than 48
different flavors of Coke alone (not to mention the more than 100 non-cola beverages sold worldwide by
Coca-Cola) to suit local tastes. Coca-Cola also changes its distribution method to fit local markets.
local responsiveness A firm’s adjustments to products, services, and processes in order to account for
local culture and needs.
However, adapting products and operations to fit local circumstances isn’t cheap. In general, the more a
company tailors a product or service to a local market, the higher the cost. Higher costs are risky,
because companies with lower costs can beat their competition through lower prices. When firms begin
to compete on a global stage, the number of rivals can increase dramatically, putting intense pressure on
firms to cut costs. Furthermore, many firms expand internationally in order to increase efficiency and to
lower costs. Firms achieve economies of scale by standardizing their products, producing them without
variations, or integrating their processes on a global scale, called global integration. Thus, firms have two
competing pressures they must address: local responsiveness and cost reduction.
global integration The standardization of processes within a single business in different locations around
the world.
There are three primary strategies firms can use to manage this strategic tension:
Multidomestic strategy—emphasizes local responsiveness over standardization
Global strategy—emphasizes global standardization and economies of scale over local responsiveness
Arbitrage strategy—takes advantage of country-comparative advantages—sources of low cost (e.g.,
cheap labor) or unique resources (e.g., skilled workers)
standardization Making products and/or processes consistent across different units within a firm and/or
across different countries the firm operates in.
The first two strategies deal directly with the tug-of-war between local responsiveness and cost-reducing
standardization differently as illustrated in Figure 9.4. The third strategy, arbitrage, can focus on either
local responsiveness or standardization, but does so from a position of taking advantage of country
differences rather than trying to overcome them.
A two-dimensional chart shows how the global strategy and multidomestic strategy deal during pressure
for local responsiveness and standardization. The horizontal axis represents pressures for local
responsiveness with low marked on the left and high on the right, and the vertical axis represents
pressures for standardization, with low marked at the bottom and high at the top. Global strategy is
marked at a point where pressures for standardization is high and pressures for local responsiveness is
low. Multidomestic strategy is marked at a point where pressures for standardization is low and
pressures for local responsiveness is high.
FIGURE 9.4 International Strategies and Local Responsiveness Versus Standardization
Each strategy is appropriate for a different set of industry dynamics and firm capabilities. We’ll discuss
each in turn as well as discussing combining strategies. The three primary strategies are not mutually
exclusive. Some firms are successful at pursuing two at the same time, although it becomes increasingly
complicated to manage operations and maintain strategic focus when doing so. At the end of the
chapter we’ll introduce a tool for determining which strategy is best for any given firm.
Airbus Strategic Plan
LAKISHA R. HARRIS
3-1 MILESTONE ONE
MAY 29, 2024
• Airbus is an international leader in the
aviation industry.
• The company specializes in the manufacture
and distribution of commercial aeroplanes,
helicopters, and space and defense products.
Company
Overview
• Airbus’s product portfolio includes A320,
A330, A350, and A380 aircraft.
• Additionally, the firm facilitates services such
as maintenance, repair, overhauling, and
training personnel (Weerasekera, 2020).
• The corporation’s customer base includes
airlines, defence agencies, governments, and
private entities.
Partnerships, Mergers and Acquisitions
• Airbus fostered strategic partnerships, mergers, and acquisitions with different companies to ensure its stability in the
competitive market.
• Partnership with Boeing is one of the most strategic moves in the development and manufacture of aircraft components
through the Transatlantic Joint Venture (Verduyn n.d).
• Additionally, Airbus acquired Bombardier’s C Series aircraft program.
• Additionally, Airbus’s partnership with Roll-Royce, a prominent manufacturer of aircraft engines created an opportunity for
the company to leverage their expertise in the development of engines.
• The partnership will help Airbus manufacture competitive propulsion systems for the Airbus aircraft and improve its
performance.
• Strategic mergers with IT companies specialized in satellite communications, artificial intelligence, and cyber security enable
Airbus to leverage advanced technology
• Partnering with Boeing provided an
opportunity to leverage expertise and
resources.
Contributions
of the
Partnership
and
Acquisition
• By acquiring Bombardier’s C Series, Airbus
increased its market share in the single-aisle
aircraft segment (Timmis, 2020).
• The acquisition provided Airbus with
enhanced technology that improved its
manufacturing operations.
• Additionally, Airbus got the opportunity to
increase its product portfolio and
competitiveness in the commercial aviation
industry.
Vision for the next 5 years
• The company aims to enhance innovation and technology application.
• Airbus seeks to expand its market presence (Kazeminia, 2023).
• Due to the effects associated with global warming, Airbus intends to lower
carbon emissions.
• Moreover, the company aims to increase the use of sustainable materials.
Future growth and innovation for Airbus
• The company will have expanded its operations to developing areas in Asia
and Africa (Anad et al., 2023).
• Partnerships and collaborations with other organisations will improve.
• Airbus will have embraced electric and hybrid propulsion.
• Advanced materials and manufacturing techniques will be implemented to
enhance improved innovation.
Conclusion
• Airbus was established as an Economic Interest Group or GIE and has since spread
to be one of the leading companies in the aeronautical industry (Kazeminia, 2021).
• Headquartered in the Netherlands, it has implemented many initiatives that have
helped it to have a large customer base.
• Despite the challenges it has encountered, such as the COVID-19 pandemic and the
Ukraine-Russia war, Airbus has continued to design high-quality products that have
helped it grow.
• Expansion to emerging markets and partnerships with other companies will guide
Airbus to aim to be a leader in the industry in the next 5 years.
References
• Anand, S. S., & Kini, S. (2023). A Systematic Review on Products and Services of IBS Software Private
Limited. International Journal of Applied Engineering and Management Letters (IJAEML), 7(4), 267-277.
• Kazeminia, A. (2021). Unfolding the airbus’ strategic growth: A successful case. Scandinavian Journal of
Management, 37(1), 101137.
• Timmis, A. (2020). Aircraft manufacturing and technology. In Air Transport Management (pp. 271-286).
Routledge.
• Verduyn, M. Boeing vs Airbus: a fair match? A textbook Duopoly revisited: Strategic interactions in the
aerospace industry.
• Weerasekera, S. (2020). Introduction to Maintenance, Repair and Overhaul of Aircraft, Engines and Components. SAE
International.
Implementation Strategy for New Learning and Development Software Program for a
Large Box Retailer
Student’s Name
Institution Affiliation
Professor’s Name
Course Name
Date
Implementation Strategy for New Learning and Development Software Program for a
Large Box Retailer
Introduction
L&D programs come in handy for those organizations that want to effectively train
their employees on the provision of skills required to perform their work. This analysis aims
to provide a large box retailer with a strategy to implement a new L&D software program
with an apt recommendation. It will consider upskilling its employees, hiring new employees
with the required skills, and outsourcing the implementation of the L&D software program to
a third-party company. Outsourcing an implementation of a new learning and development
software program for a large box retailer is an effective way of running the program.
Implementation Strategy for the New L&D Program
Upskilling its own employees, hiring new employees with the desired skills, and
outsourcing the implementation of the L&D software program to a third-party company are
the available options. The advantage of choosing to upskill the company employees is that it
is cost-effective in the long run and increases employee loyalty as they understand that the
company is interested in their development (Nguyen, 2020). The disadvantage is that it is not
suitable for the current situation where the implementation of the new L&D software
program has a short turnaround time.
The advantage of new hires routes is that the organization will have access to the
required expertise and skills to run the program. However, the disadvantage of new hires is
that they have high upfront costs as well as introduce disruptions before the new team can
sync with the existing team in the organization. Outsourcing the program to a company that
specializes in L&D software programs has a good advantage in that the program is handled
by competent talent, ensuring its effective implementation (Folkes, 2020). The disadvantage
of outsourcing the program implementation is that security and privacy are only sometimes
guaranteed by third-party partners, which can be solved by partnering with reputable partners.
Recommended Approach
The recommended approach is outsourcing the software program to a company
specializing in L&D programs. The justification is that the organization would immediately
get access to the required specialized skills to implement the new software program
effectively. Outsourcing would result in faster implementation compared to upskilling or
hiring new talent (Folkes, 2020). Outsourcing the program implementation would also help in
the scaling of the program in the near future or downscaling, which would be cost-effective
for the large box retailer.
In order to increase revenue or market share for the company chosen, they would need
to consider implementing new technologies into their operations, especially artificial
intelligence (AI) and machine learning (Lee et al., 2019). The company would need to upskill
their employees or hire new talent with the required new technologies and skills so as to ship
AI-driven solutions to the market. The company would also need to upgrade its facilities to
support advanced technological infrastructure. Due to the complexities involved in machine
learning and AI, the recommended approach is to ally with a tech firm that focuses on AI and
machine learning. The collaboration would utilize the best of the two companies and help the
company to launch solutions sooner in the market, hence gaining a competitive edge.
In conclusion, outsourcing the software program to a company specializing in L&D
programs is the most effective route, as the organization would immediately get access to the
required specialized skills to implement the new software program effectively. Outsourcing
would result in faster implementation compared to upskilling or hiring new talent. For the
company chosen, they would need to implement new technologies into their operations,
especially artificial intelligence (AI) and machine learning, to increase revenue and their
market share. For the success of the given recommendations and to ensure long-term success
for the companies, they would be required to have essential collaboration and strategic
planning skills.
References
Folkes, J. A. (2020). Strategies Small Business Leaders Implement for Outsourced IT
Solutions for Business Sustainability (Doctoral Dissertation, Walden University).
https://www.proquest.com/openview/8cfd87e72237ba82f2ce78433b91f6b0/1?pqorigsite=gscholar&cbl=51922&diss=y
Lee, J., Suh, T., Roy, D., & Baucus, M. (2019). Emerging Technology and Business Model
Innovation: The Case of Artificial Intelligence. Journal of Open Innovation:
Technology, Market, and Complexity, 5(3), 44. https://doi.org/10.3390/joitmc5030044
Nguyen, C. (2020). The Impact of Training and Development, Job Satisfaction and Job
Performance on Young Employee Retention. SSRN Electronic Journal.
https://doi.org/10.2139/ssrn.3930645
Implementation Strategy for New Learning and Development Software Program for a
Large Box Retailer Outline
I.
Introduction
a. L&D programs come in handy for those organizations that want to effectively
train their employees on the provision of skills required to perform their work.
b. Thesis Statement: Outsourcing an implementation of a new learning and
development software program for a large box retailer is an effective way of
running the program.
II.
Implementation Strategy for the New L&D Program
a. Upskilling its own employees, hiring new employees with the desired skills, and
outsourcing the implementation of the L&D software program to a third-party
company are the available options.
b. The advantage of new hires routes is that the organization will have access to the
required expertise and skills to run the program.
III.
Recommended Approach
a. The recommended approach is outsourcing the software program to a company
specializing in L&D programs.
b. In order to increase revenue or market share for the company chosen, they would
need to consider implementing new technologies into their operations, especially
artificial intelligence (AI) and machine learning (Lee et al., 2019).
IV.
Conclusion
a. In conclusion, outsourcing the software program to a company specializing in
L&D programs is the most effective route, as the organization would immediately
get access to the required specialized skills to implement the new software
program effectively.
V.
References