INTERNATIONAL BUSINESS – What lessons can other MNCs learn from the experience of McDonald’s

What lessons can other MNCs learn from the experience of McDonald’s

 

INTERNATIONAL BUSINESS

 

 

GROUP A : Cases 1 to 4 : 40 Marks

GROUP B : Cases 5 & 6 : 40 Marks

 

Case-1                                                                                              (12 Marks)

 

AT THE RECEIVING END (McDonald)
Spread over 121 countries with 30,000 restaurants, and serving 46 million customers each day with the help of more than 400,000 employees, the reach of McDonald’s is amazing. It all started in 1948 when two brothers, Richard and Maurice ‘Mac’ McDonald, built several hamburger stands, with golden arches in southern California. One day a travelling salesman, Ray Kroc, came to sell milkshake mixers. The populatity of their $0.15hamburgers impressed him, so he bought the world franchise rights from them and spread the golden arches around the globe.
McDonald’s depends on its overseas restaurants for revenue. In fact, 60 per cent of its revenues are generated outside of the United States. The key to the company’s success is its ability to standardise the formula of quality, service, cleanliness and value, and apply it everywhere.
The company, well known for its golden arches, is not the world’s largest company. Its systemwide sales are only about one-fifth of Exxon Mobil or WalMart stores. However, it owns one of the world’s best known brands, and the golden arches are familiar to more people than the Christian cross. This prominence, and its conquest of global markets, makes the company a focal point for Inquiry and criticism.
McDonald’s is a frequent target of criticism by anti-globalisation protesters. In France, a pipe- smoking sheep farmer named Jose Bove shot to fame by leading a campaign against the fast-food chain. McDonald’s is a symbol of American trade hegemony and economic globalisation. Jose Bove organised fellow sheep farmers in France, and the group led by him drove tractors to the construction site of a new McDonald’s restaurant and ransacked it. Bove was jailed for 20 days, and almost overnight an international anti-globalisation star was borne. Bove, who resembles the irrelevant French comic book hero Asterix, travelled to Seattle in 1999, as part of the French delegation to lead the protest against commercialisation of food crops promoted by the WTO. Food, according to him, is too vital a part of life to be trusted to the vagaries of the world trade. In Seattle, he led a demonstration in which some ski-masked protestors trashed at McDonald’s. As Bove explained, his movement was for small farmers against industrial farming, brought about by globalisation. For them, ‘McDonald’s was a symbol of globalisation, implying the standardisation of food through industrial farming. If this was allowed to go on, he said, there would no longer be need for farmers. “For us,” he declared, “McDonald’s is a symbol of what WTO and the big companies want to do with the world.” Ironically, for all of Bove’s fulminations against McDonald’s, the fast food chain counts its French operations among its most profitable in 121 countries. As employer of about 35,000 workers, in 2006, McDonald’s was also one of France’s biggest foreign employers.
Bove’s and his followers are not the only critics of McDonald’s. Leftists, anarchists, nationalists, farmers, labour unions, environmentalists, consumer advocates, protectors of animal rights, religious orders and intellectuals are equally critical of the fast food chain. For these and others, McDonald’s represents an evil America. Within hours after US bombers began to pound Afghanistan in 2001, angry Pakistanis damaged McDonald’s restaurants in Islamabad and an Indonesian mob burned an American flag.
McDonald’s entered India in the late 1990s. On its entry, the company encountered a unique situation, Majority of the Indians did not eat beet but the company’s preparations contained cow’s meat. Nor could the company use pork as Muslims were against eating it, This left chicken and mutton. McDonald’s came out with ‘Maharaja Mac’, which is made from mutton and ‘McAloo Tikki Burger’ with chicken potato as the main input. Food items were segregated into vegetarian and non-vegetarian categories.
Though it worked for sometime, this arrangement did not last long. In 2001, three Indian businessmen settled in Seattle sued McDonald’s for fraudulently concealing the existence of beef in its French fries. The company admitted its guilt of mixing miniscule quantity of beef extract in the oil. The company settled the suit for $10 million and tendered an apology too. Further, the company pledged to label the ingredients of its food items, and to find a substitute for the beef extract used in its oil.
McDonald’s succeeded in spreading American culture in the East Asian countries. In Hong Kong and Taiwan, the company’s clean restrooms and kitchens set a new standard that elevated expectations throughout those countries. In Hong Kong, children’s birthdays had traditionally gone unrecognised, but McDonald’s introduced the practice of birthday parties in its restaurants, and now such parties have become popular among the public. A journalist set forth a ‘Golden Arches Theory of Conflict Prevention’ based on the notion that countries with McDonald’s restaurants do not go to war with each other. A British magazine, The Economist, prints an yearly ‘Big Mac Index’ that uses the price of a Big Mac in different foreign currencies to assess exchange rate distortions.
Questions

  1. What lessons can other MNCs learn from the experience of McDonald’s?
  2. Aware of the food habits of Indians, why did McDonald’s err in mixing beef extract in the oil used for fries?
  3. How far has McDonald’s succeeded in strategizing and meeting local cultures and needs?

 

 

CASE – 2                                                                                    (12 Marks)

 

LATE MOVER ADVANTAGE?    (TOYOTA)

 

Though a late entrant, Toyota is planning to conquer the Indian car market. The Japanese auto major wants to dispel the notion that the first mover enjoys an edge over the rivals who arrive late into a market.

 

Toyota entered the Indian market through the joint venture route, the partner being the Bangalore based Kirloskar Electric Co. Known as Toyota Kirloskar Motor (TKM), the plant was set up in 1998 at Bidadi near Bangalore.
To start with, TKM released its maiden offer— Qualis. Qualis is not a newly conceived, designed, and brought out vehicle. Rather it is the now avatar of Kijang under which brand the vehicle was sold in markets like Indonesia.
Quails virtually had no competition. Telco’s Sumo was not a multi-utility vehicle like Qualis. Rather, it was a mini-truck converted into a rugged all-purpose van. More importantly, Toyota proved that even its old offering, but decked up for India, could offer better quality than its competitor. Backed by a carefully thought out advertising campaign that communicated Toyota’s formidable global reputation, Qualis went on a roll and overtook Tata Sumo within two years of launch.
Sumo sold 25,706 vehicles during 2000—2001, compared to a 3 per cent growth over the previous year, compared to 25,373 of Qualis. But during 2001—2002, it was a different story. Quails had been clocking more than 40 per cent share of the market. At the end of Sept 2001, Qualis had sold over 25,000 units, compared to Sumo’s 18000 plus.
The heady initial success has made TKM think of the future with robust confidence. By 2010, TKM wants to make and sell one million vehicles per year and garner one-third share of the Indian market.
The firm is planning to introduce a wide range of vehicles—a sub-compact, a sedan, a luxury car and a new multi-utility vehicle to replace Quails. A significant percentage of the vehicles will be exported.
But Toyota is not as lucky in China. Its strategy of ‘late entry’ in China seems to have back tired, In 2005, it sold just 1,83,000 cars in China, the fastest growing auto market in the world. Toyota ranks ninth in the market, far behind Volkswagen, General Motors, Hyundai and Honda.

 

Toyota delayed producing cars in China until 2002, when it entered a joint venture with a local company, the First Auto Works Group (FAW). The first car manufactured by Toyota-FAW, the Vios, failed to attract much of a market, as, despite its unremarkable design, it was three times as expensive as most cars sold in China.
Late start was not the only problem. There were other lapses too. Toyota assumed the Chinese market would be similar to the Japanese market. But Chinese market, in reality, resembled the American market.
Sales personnel in Japan are paid salaries. They succeeded in building a loyal clientele for Toyota by providing first-class service to them. Likewise, most Japanese auto dealers sell a single brand, thereby ensuring their loyalty to it. Japan is a relatively a well-knit country with an ethnically homogeneous population. Accordingly, Toyota used nationwide advertising to market its products in its home country.
But China is different. Sales people are paid commissions and most dealers sell multiple brands. Obviously, loyalty plays little role in motivating either the sales staff or the dealers, who will ignore a slow selling product should a more profitable one turn up. Besides, China is a large, diverse country. A standardised ad campaign will not do. Luckily, Toyota is learning its lessons.
Competition in the Chinese market is tough, and Toyota’s success in reaching its goal of selling a million cars a year, by 2010, is uncertain. But, its chances are brighter as the company is able to transfer lessons learned in the American market to its operations in China.

 

What lessons can other MNCs learn from the experience of McDonald’s

 

Questions

 

  1. Why has the ‘late corner’s strategy’ of Toyota failed in China, though it succeeded In India?
  2. Why has Toyota failed to capture the Chinese market? Why is it trailing behind its rivals?

 

Case -3                                                                          (10 Marks)

 

ORGANISATIONAL CHANGE AT UNILEVER


Unilever is a very old multinational with worldwide operations In the detergent and food industries. For decades, Unilever managed its worldwide detergents activities in an arm’s-length manner. A subsidiary was set up in each major national market and allowed to operate largely autonomously, with each subsidiary carrying out the full range of value creation activities, including manufacturing, marketing, and R&D. The company had 17 autonomous national operations in Europe alone by the mid-1980s.
In the 1990s, Unilever began to transform its worldwide detergents activities from a loose confederation into a tightly managed business with a global strategy. The shift was prompted by Unilever’s realisation that its traditional way of doing business was no longer effective in an arena where it had become essential to realise substantial cost economies, to innovate, and to respond quickly to changing market trends.

 

The point was driven home in the 1980s when the company’s archrival, Procter & Gamble, repeatedly stole the lead in bringing new products to market. Within Unilever, ‘persuading” the 17 European operations to adopt new products could take four to five years. In addition, Unilever was handicapped by a high-cost structure from the duplication of manufacturing facilities from country to country and by the company’s inability to enjoy the same kind to scale economies as P&G. Unilever’s high costs ruled out its use of competitive pricing.
To change this situation, Unilever established product divisions to coordinate regionai operations. The 17 european companies now report directly to Lever Europe. Implicit in this new approach is a bargain: The 17 companies are relinquishing autonomy in their traditional markets in exchange for opportunities to help develop and execute a unified pan-European strategy.
As a consequence of these changes, manufacturing is now being rationalised, with detergent production for the European market concentrated in a few key locations. The number of European plants manufacturing soap has been cut from 10 to 2, and some new products will be manufactured at only one site. Product sizing and packaging are being harmonised to cut purchasing costs and to pave the way for unified pan-European advertising. By taking these steps, Unilever estimates it may save as much as $400 million a year in its European operations.
Lever Europe is attempting to speed its development of new products and to synchronise the launch of new products throughout Europe. Its efforts seem to be paying off: A dishwasher detergent introduced in Germany in the early 1990s was available across Europe a year later—a distinct improvement.

 

But history still imposes constraints. Procter & Gamble’s leading laundry detergent carries the same brand name across Europe, but Unilever sells its product under a variety of names. The company has no plans to change this. Having spent 100 years building these brand names, it believes it would be foolish to scrap them in the interest of pan-European standardisation.
Questions

 

  1. What strategy was Unilever pursuing before its early 1990s reorganisation? What kind of structure did the company have? Were Unilever’s strategy and structure consistent with each other? What were the benefits of this strategy and structure? What wore the drawbacks?
  2. By the 1990s, was there still a fit between Unilever’s strategy and structure and the operating environment in which it competed? If not, why not?

 

  1. What kind of strategy and structure did Unilever adopt in the 1990s? Is this appropriate given the environment in which Unilever now competes? What are the benefits of this organisational and strategic shift? What are the costs?

 

What lessons can other MNCs learn from the experience of McDonald’s

 

CASE – 4                                                                           (6 Marks)

 

 

THE EU’S LAGGING COMPETITIVENESS


In a report produced for the European Commission, published in November 1998, it was argued that the EU lags behind the USA and Japan on most measures of international competitiveness. Gross domestic product per capita, sometimes used as an indicator of international competitiveness at the country level, was 33 per cent lower in the EU as a whole than in the USA and 13 per cent lower than in Japan. The EU’s poor record in creating employment was singled out for particular criticism. As this appeared to apply across the board in most industrial sectors, it suggested that the EU’s poor performance related to the business environment in general and, in particular, to the inflexibility of Europe’s labour markets and excessive regulation In markets for goods and services. A shortage of risk capital for advanced technological development and high cost and inefficiency of Europe’s financial services were also highlighted by the report. For one reason or another, European industries generally lag behind in technology industries. if measured by the number of inventions patented in at least two countries, the USA is well ahead of most European countries, as well as Japan. Despite these shortcomings, the report’s authors focus attention on flexible markets, market liberalisation, and the creation of a competitive business environment rather than on targeted intervention by the EU or national authorities.
Questions 


1)  Is gross domestic product per capita a useful indicator of International competitiveness in the EU?

2)  Is it fair to point the blame for the EU’s poor international competitiveness at inflexible labour markets, regulated goods and services markets, and a general lack of competition? What alternative explanations might be suggested?

3)  What appears to be the problem with the EU’s banking sector?
4)  Is the number of patents registered a useful indicator of superior International competitiveness? Why do you think the USA does well in this area?
5)  Should the EU consider more targeted intervention in the form of subsidies or strategic trade policy?

 

 

Group -B

 

Case – 5                                                               (20 Marks)

 

LI & FUNG ON A ROLL

 

Li & Fung has emerged as one of Hong  Kong’s most famous and successful trading companies, dealing in various types of  high volume time sensitive” consumer goods.

Founded about 90 years back, it employs 2,500 people worldwide. The company was ranked 8th in Asia and 3rd in Hong Kong in  the Asian Management Excellence Survey, recently conducted by Assets Magazine. The harvard educated Fung Brothers, Victor and William have been the architects of the company’s success and  are today leading business personalities in Hong Kong.
Li & Fung was founded in Guangzhou in 1906 by Fung Pak Liu and Li Toming. The company began by exporting porcelain and silk from China.

 

Later, it moved into bamboo, jade, ivory, handicrafts, and fireworks. As the Canton port was shallow, Li & Fung moved to Hong Kong, a better equipped port, in 1937. During World War II, trading operations were suspended. Shortly after the War, the company was bought out by the Fung family.
In the late 1940s, Hong Kong rapidly emerged as a manufacturing base for labour-intensive consumer products. Li & Fung began to export garments, toys, electronic goods, and plastic flowers and quickly emerged as one of Hong Kong’s biggest exporters. In 1968, the firm opened an office in Taiwan, its first outside mainland China. In the 1960s and 1970s, Li & Fung diversified into shipping services and property.
Li & Fung’s next phase of evolution began with the return, in the early 1970s, of Victor and William, third generation family members from the US.
The two brothers began efforts to modernise and rebuild the company as a professionally managed enterprise. They not only extended Li & Fung’s geographical reach but also made coordinated efforts to transform Li & Fung from a sourcing agent to “a manager and deliverer of manufacturing programmes”. Li & Fung’s shares were listed on the Hong Kong Stock Exchange after a public issue, which was oversubscribed by 113 times. The brothers hoped that this would professionalise the management and free it from family control.
In 1989, Li & Fung became a privately held company after a management buy-out. It was restructured subsequently into two separate businesses, export trading and retail. In 1992, the export trading business was listed on the Hong Kong Stock Exchange.
The 1995 acquisition of Inchcape Buying Services helped Li & Fung not only to double its turnover but also to expand its customer base in Europe. In the late 1990s. Li & Fung expanded its sourcing options by tapping new regions such as the Indian sub-continent, the Carribean, and the Mediterranean basins.
Over the years, Li & Fung executives have been continually looking for new suppliers in different countries. After collecting market information, they identify the most promising vendors and then visit their factories to verify the information furnished by them. After a tie-up has been finalised, Li & Fung educates the supplier on procedures for making bids, placing and accepting orders, ensuring quality control and releasing payment. In many cases, Li & Fung staff work closely with the supplier to improve the manufacturing and quality assurance processes. Monitoring of supplies reduces progressively with the passage of time.
Currently, Li & Fung has a network of 44 offices in 30 countries. The company has access to some 7,500 suppliers and works with as many as 2,500 of them of any given time. Li & Fung’s global network is summarised in Table 16.2.
Li & Fung’s product range now includes fashion accessories, festive products, furnishings, garments, giftware, handicrafts, home products, sporting goods, toys, and travel goods. Tables 16.3 and 16.4 give details of Li & Fung’s business growth in the past five years.
At the start of the new millennium, Li & Fung has strengthened its Internet initiatives. The company’s recently launched website, Iifung.com is expected to help Li & Fung offer customised service to even small customers.
A web page provides a three-dimensional picture of the basic product along with choice of fabric, The website allows a high degree of customisation at little extra cost. Buyers can choose buttons, pockets, and logos.
Li & Fung is a good illustration of what a small company in an emerging market can achieve in terms of globalisation in a short span of time. In the early 1990s, Li & Fung was a trading company, dependent heavily on China for sourcing its export Items. By the start of the new millennium, LI & Fung had put in place a global network.
One reason for Li & Fung’s rapid global expansion in the 1990s has been pressure from US and European retailers to cut costs by moving to cheaper sourcing locations. This has prompted the company to move into South Asia and Africa. Another globalisation driver has been shortening product lifecycles. Central American arid Mediterranean operations help Li & Fung to serve the US and European markets much faster. Li & Fung’s global expansion is also a direct outcome of the company’s intent to add more value to its trading activities.
Li & Fung has frequently extended its sourcing network to access new low cost locations. While developing a new base, Li & Fung takes into account factors such as proximity to customers, wage levels, and manufacturing capabilities. The major issues it had faced, are hiring local staff, developing new vendors, dealing with local government bureaucracies, and coming to grips with local cultures. Typically, new operations take some time to generate profits because they involve greater supervision and travel costs. As it has expanded its overseas network, U & Fung has found itself dealing with a multitude of national trade restrictions. With textiles being one of its most important products, the Multi Fiber Agreement (MFA) has proved to be a major stumbling block. Under the MFA, each lower cost country is given an annual quota of textile products it can export to higher cost countries. Governments of exporting countries, in turn divide these quotas among different players. Over the years, Li & Fung has accumulated large quotas for different items and for different countries.
The acquisition of Inchcape Marketing Services for $200 million in June 1999 has created an opportunity for Li & Fung to emerge as a regional distribution power-house.
Not all of Li & Fung’s attempts to enter new markets have been successful, the most spectacular failure having taken place in Japan. The company’s attempts to form a strategic alliance with consumer goods wholesaler, Doshisha failed, for several reasons. Li & Fung did not accept the ambiguity of Japanese contracts. It also could not come to terms with the unwillingness of Japanese retailers to take responsibility for overstocked goods. William Fung has explained it away as a cultural problem: “They (Doshisha employees) said: Why should we go work with Li & Fung when I have this guy who goes drinking with me every Friday in Osaka?” In 1999, Japan represented only one per cent of Li & Fung’s sales.
By the 1980s Hong Kong had become a relatively expensive and uncompetitive manufacturing location, compared to other countries in South East and East Asia. In the transistor radio business, Hong Kong faced intense competition from Taiwan and Korea. The situation prompted Li & Fung to improve efficiency and cut costs by reconfiguring its value chain. The company began to send kits containing components to China for the labour-intensive assembly process. The assembled transistors were then brought back to Hong Kong for inspection and testing. Li & Fung replicated the strategy for Barbie dolls. It did the design work and prepared the moulds in Hong Kong. The moulds were shipped to China, for plastic injection, painting, and tailoring of the doll’s clothing. Hong Kong’s well-developed banking system facilitated efficient letter of credit negotiation while its status as a regional shipping centre helped in the distribution of products around the world.
By the 1990s, Li & Fung’s value chain configuration across countries had become even more sophisticated. For a typical garment order from a retailer in the West, Li & Fung would decide to buy yarn from say, a Korean producer, but do the weaving and dyeing in Taiwan. It would source zippers from the Chinese plants of leading Japanese companies such as YKK. Based on quotas and cost of labour, Li & Fung would then decide where the production of garments would take place. To reduce dependence on a single production point, the order would typically be distributed among different factories with in the country (see Tables 16.5 and 16.6).
Li & Fung’s value chain configuration across different countries has enabled it to reduce the time between obtaining orders and their execution. With customer tastes rapidly changing, retailers in the west have six or seven seasons a year. As a result, the business has became time sensitive. Li & Fung has attempted to build excellent

 

POLITICAL AND CIVIL LIBERTIES AROUND THE WORLD

Activities done in-house Activities outsourced
Design Raw material and component sourcing
Engineering Production
Production Planning
Quality Control
Testing
Logistics

 

Li & FUNG: EXAMPLES OF SOURCING STRATEGY

 

Jackets
Microfiber fabric—Korea
Nylon taffeta lining—Taiwan
Zippers—Japan
Down filling—China
Stitching—China
Toys
Mechanical drawings—Hong Kong
Plastic Molds—Hong Kong
Customised Chips—Taiwan
Assembly-China

 

 

relationships with its suppliers, and win their loyalty to ensure that they respond quickly to any situation.
For a company so heavily dependent on outsourcing, quality control has come a major issue. Li & Fung carries out regular inspections at the raw materials, manufacturing, and finished goods stages. The company’s engineers do not hesitate to reject lots, which fail to meet the acceptable quality levels. After reworking, the consignments are either accepted at the contacted price or at a discount. In extreme cases, shipments are rejected. Li & Fung has attempted to differentiate itself from its competitors by its ability to locate raw materials and components. Trading staff have detailed Information on where the cheapest raw materials and the materials such as embroidery, electronic components, and plastics are available. Li & Fung’s suppliers benefit from this information network.
Unlike many trading companies, which are divided on the basis of geographic regions, Li & Fung is divided into divisions that are focused on a single customer or a group of customers.
Li & Fung’s divisions are small, entrepreneurial, and empowered to take all. the relevant merchandising divisions that go into coordinating a production programme for a customer, When Li & Fung acquires a large customer, it often creates a separate division to serve the customer. For a smaller customer, an existing division is assigned the responsibility, but usually with a dedicated team.
The divisional system aims to achieve quick compliance with the customer’s design, quality, shipping, and invoicing needs.
Li & Fung has made each product group; executive responsible for one country, to make him or her sensitive to local needs.
While allowing divisions to operate with a great deal of autonomy, Li & Fung has tightly centralized some functions. A standardized and fully computerized information system allows headquarters to keep track of orders and their execution. Financial controls are stringent, – especially in the case of working capital. The Hong Kong headquarters centrally manages cash flows. All letters of credit come to Hong Kong for approval, LI & Fung’s day-to-day activities are handled by’ product group managers. Together with the top management, they constitute the Policy Committee of 30 people. The committee typically meets every five to six weeks and discusses various important issues such as ethical practices of suppliers and country of origin regulations. The committee not only formulates policies hut also prescribes operating procedures to implement them.

 

Questions

1)  In what way has operations management let competitive advantage to Li & Fung?

2)  How effective is Li & Fung’s value chain configuration? Ineffective? Discuss.
CASE – 6                                                                                                                         (20 Marks)

 

Global Marketing in Wipro Infotech — A Strategic Perspective


INTRODUCTION
Global Marketing is a relatively recent phenomenon in India with many companies looking for business opportunities beyond national frontiers to acquire competitive advantage. It is the result of companies synergising their domestic and international operations in such a way that they jointly contribute towards corporate objectives. The New Economic Policy (NEP) ushered in by liberalisation has provided a major impetus to international business, providing a variety of benefits to the corporate sector in the form of export incentives and duty concessions. With increased competition in the domestic sector following liberalization, companies are now forced to adopt the export route to survive in the market. Given this scenario, the IT industry in India has done exceedingly well and has come to be recognized as a global centre for research and development. Considering the vast resource of skilled manpower available here and increased foreign investment in software technology parks, this sector is poised for further growth in the coming years, a phenomenon which could firmly establish the identity of India as a global competitor.


Given this scenario, the IT industry in India is highly competitive with major players like TCS. HCL, Wipro and T1SL developing strategic alliances with MNCs like HP, ACER, IBM and others to further their business interests. Some of the companies have multiple alliances to support different product needs as well as to acquire expertise in specific aspects of product development. Wipro is one of the companies that have been
actively working towards enhancing its reputation as a global software company and improve its market presence abroad. In recent years Wipro has realised that competition for global markets has become more intense and, therefore, selecting and exploiting global market opportunities requires direction and a sense of purpose. Globally oriented companies are increasingly using their overarching corporate strategy as a reference point for integrating and coordinating their domestic and international marketing activities. Thus, the selection of market, mode of market, entry type of market presence, allocation of resources and overall marketing strategy need to be consistent with and supportive of the company’s long-term strategic objectives and goals—a philosophy shared by Wipro.
GLOBAL MARKETING IN WIPRO AND ITS ANTECEDENTS
Foreign and domestic marketing are similar in that the purpose is to create and manage profitable exchange relationships between an organisation amid its markets. This is done by satisfying the needs or wants of a particular market more effectively and efficiently than the competitors. However, Wipro believes that this idea is misplaced and cites three important aspects or factors that differentiate international marketing from domestic marketing:

  • Legal systems
  • Management styles
  • Nature of competition

In Wipro’s case. the decision to go global was the outcome of forced circumstances rather than a planned strategy. In other words, Wipro was not a proactive player. In retrospect, their strategies appear to be consonant with three basic marketing philosophies, which we now describe.

  1. The Market Extension Philosophy
    In the initial stages of internationalising their operations. Wipro did not pay much attention to the specific needs of foreign clients. They believed that they could satisfy the needs of their clients by providing similar services as in the domestic market. Foreign markets were primarily viewed as outlets for surplus capacity. The underlying assumption was that they are primarily interested in service availability at low cost.
  2. The Multidomestic Market Philosophy
    This concept builds on the belief that (a) different foreign markets can make significant contributions to the company in the long run: (b) efficiency can be achieved if the foreign marketing activities of the firm were integrated and coordinated in a way that accentuates the company’s competitive advantages.

A company adopting the multidomestic market orientation assumes foreign marketing opportunities to be as important as the domestic marketing opportunities. Basically, this approach has been the result of better awareness that improved market performance was possible by integrating and coordinating foreign market activities and experience in exploiting advantages.  Thus the marketing strategy was differentiated to fit each market’s needs, given tis characteristics or peculiarities.

  1. The Global Marketing Philosophy
    Wipro has recently setup a global R&D centre in Bangalore. The objective is to have a dedicated team of professionals catering to international marketing needs because of the vast potential of business opportunities available. Their current strategy is in broad conformity with the global marketing philosophy. It is a systems approach to international and domestic marketing. The strategy focuses on synergising market opportunities, domestic and foreign so as to maximize joint profits or any other performance variable that is consistent with the overall corporate objective. Essentially the whole world is viewed as a single market and opportunities are selected by means of portfolio assessment and exploited in a way that is consistent with strategic objectives.

 

The services provided by Wipro are:

  • IT Services
  • Product design
  • Solutions

ASSESSMENT OF INTERNATIONAL MARKET OPPORTUNITIES


The assessment process in Wipro consists of identifying, analyzing and selecting additional marketing opportunities that meet the firm’s strategic objectives and create competitive advantage. Assessment enables development of new marketing strategies and objectives and helps in the implementation and control of marketing effort.
Types of Assessment
(i) Market entry assessment

 

Issues:
a)  What is the nature and potential size of the market?
b)  What is the political and economic climate prevalent in the market? (PEST analysis)?

  1. c) What are the legal issues?

 

Increasingly using their overarching corporate strategy as a reference point for integrating and coordinating their domestic and international marketing activities. Thus, the selection of market, mode of market entry, type of market presence, allocation of resources and overall rnarketing strategy need to be consistent with and supportive of the company’s long-term strategic objectives and goals—a philosophy shared by Wipro.
GLOBAL MARKETING IN WIPRO AND ITS ANTECEDENTS
Foreign and domestic marketing are similar in that the purpose is to create and manage profitable exchange relationships between an organisation and its markets. This is done by satisfying the needs or wants of a particular market more effectively and efficiently than the competitors. However, Wipro believes that this idea is misplaced and cites three important aspects or factors that differentiate international marketing from domestic marketing:

  • Legal systems
    • Management styles
    • Nature of competition

In Wipro’s case, the decision to go global was the outcome of forced circumstances rather than a planned strategy In other words, Wipro was not a proactive player. In retrospect, their strategies appear to be consonant with three basic marketing philosophies, which we now describe:

  1. The Market Extension Philosophy
    In the initial stages of internationalising their operations, Wipro did not pay much attention to the specific needs of foreign clients. They believed that they could satisfy the needs of their clients by providing similar services as in the domestic market. Foreign markets were primarily viewed as outlets for surplus capacity. The underlying assumption was that they are primarily interested in service availability at low cost.
  2. The Multidomestic Market Philosophy
    This concept builds on the belief that (a) different foreign markets can make significant contributions to the company in the long run; (b) efficiency can be achieved if the foreign marketing activities of the firm were integrated and coordinated in a way that accentuates the company’s competitive advantages.

A company adopting the multidomestic market orientation assumes foreign marketing opportunities to be as important as the domestic marketing opportunities. Basically, this approach has beer the of better awareness that improved rnarket performance was possible by integrating and co-ordinating foreign market activities and experience in exploiting advantages. Thus, the marketing strategy vas differentiated to fit each markets needs, given its characteristics or peculiarities.

  1. The Global Marketing Philosophy
    Wipro has recently setup a global R&D centre in Bangalore. The objective is to have a dedicated team of professionals catering to international marketing needs because of the vast potential of business opportunities available. Their current strategy is in broad conformity with the global marketing philosophy. It is a systems approach to international and domestic marketing. The strategy focuses on synergising market opportunities, domestic and foreign so as to maximize joint profits or any other performance variable that is consistent with the overall corporate objective. Essentially the whole world is viewed as a single market and opportunities are selected by means of portfolio assessment and exploited in a way that is consistent with strategic objectives.

The services provided by Wipro are:
• IT Services
• Product design
• Solutions
ASSESSMENT OF INTERNATIONAL MARKET OPPORTUNITIES
The assessment process in Wipro consists of identifying, analyzing and selecting additional marketing opportunities that meet the firm’s strategic objectives and create competitive advantage. Assessment enables development of new marketing strategies and objectives and helps in the implementation and control of marketing effort.
Types of Assessment
(i) Market entry assessment
Issues:
a) What is the nature and potential size of the market?
b) What is the political and economic climate prevalent in the market? (PEST analysis)?
(c) What are the legal issues?
GLOBAL MARKETING IN WIPRO AND ITS ANTECEDENTS
foreign and domestic marketing are similar in that the purpose is to create and manage profitable exchange relationships between an organisation and its markets. This is done by satisfying the needs or wants a particular market more effectively and efficiently than the competitors. However, Wipro believes that this idea is misplaced and cites three important aspects or factors that differentiate international marketing from domestic marketing:
• Legal systems
• Management styles
• Nature of competition
In Wipro’s case, the decision to go global was the outcome of forced c1rcumstances rather than a planned strategy. In other words, Wipro was not a proactive player. In retrospect, their strategies appear to be consonant with three basic marketing philosophies, which we now describe:

  1. The Market Extension Philosophy
    In the initial stages of internationalising their operations, Wipro did not pay much attention to the specific needs of foreign clients. They believed that they could satisfy the needs of their clients by providing similar services as in the domestic market. Foreign markets were primarily viewed as outlets for surplus capacity. The underlying assumption was that they re primarily interested in service availability at low cost.
  2. The Multidomestic Market Philosophy
    [his concept builds on the belief that (a) different foreign markets can make significant contributions to the company in the long run; (b) efficiency an be achieved if the foreign marketing activities of the firm were integrated and coordinated in a way that accentuates the company’s competitive advantages.

A company adopting the multidomestic market orientation assumes foreign marketing opportunities to be as important as the domestic marketing opportunities. Basically, this approach has been the result of better awareness that improved market performance was possible by integrating and coordinating foreign market activities and experience in exploiting advantages. Thus the marketing strategy was differentiated to each market’s needs, given its characteristics or peculiarities.

  1. The Global Marketing Philosophy
    W
    ipro has recently setup a global R&D centre in Bangalore. The objective is to have a dedicated team of professionals catering to international marketing needs because of the vast potential of business opportunities available. Their current strategy is in broad conformity with the global marketing philosophy. It is a systems approach to international and domestic marketing. The strategy focuses on synergising market opportunities, domestic and foreign so as to maximize joint profits or any other performance variable that is consistent with the overall corporate objective. Essentially the whole world is viewed as a single market and opportunities are selected by means of portfolio assessment and exploited in a way that is consistent with strategic objectives.

The services provided by Wipro are:
• IT Services
• Product design
• Solutions
ASSESSMENT OF INTERNATIONAL MARKET OPPORTUNITIES
The assessment process in Wipro consists of identifying, analyzing and selecting additional marketing opportunities that meet the firm’s strategic objectives and create competitive advantage. Assessment enables development of new marketing strategies and objectives and helps in the implementation and control of marketing effort.
Types of Assessment


(i) Market entry assessment

 

Issues:
(a) What is the nature and potential size of the market?
(b) What is the political and economic climate prevalent in the market? (PEST analysis)?
(c) What are the legal issues?

(d) What are the resource requirements?
(e) What are the logistic requirements?
Wipro follows a four-step entry assessment procedure, which is illustrated below (refer to Chart 1).

 

(ii) Market place assessment

Issues:
(a) Whether to change market presence in a particular country, and how.
(b) Whether to add a new product or drop an existing product from the product line.
Chart 2 depicts the structural framework of Wipro’s market assessment procedure.
INTERNATIONAL MONITORING SYSTEM


The information categories developed at Wipro for an international monitoring system are as follows:
Political Environment


  • Parties
  • Policies
  • Public opinion

 

Economic Environment


  • Infrastructure
    • Economic policies (GNP inflation, exchange rate)
    • Technology
    • Markets (customers, suppliers, competitors)

 

Legal Environment
• Laws
• Rules arid regulations
• Practices
CUSTOMER AUDIT AT WIPRO FOR INTERNATIONAL STRATEGY DEVELOPMENT
The International Business Division carries out the process of customer audit. The exercise, though complex, gives them a clear profile about the potential or prospective customers. The evaluation is done on five basic interrogatives.

  1. What
    • benefits do the customers seek
    • factors influence demand
    • functions are provided by the product/service to the customer
    • are the important buying criteria
    • kind of product support services do the customers expect (post-sales)
  2. How
    • do the customers buy
    • long does the buying process last
    • much are they willing to pay
    • do the customers use the product
    • does the product/service fit into their operations
  3. Where
    • is the decision made
    • do customers seek information about the product
    • do customers buy the product
  4. When
    • is the first decision to buy made
    • is the product repurchased
  5. Why
    • do customers buy
    • do customers buy Wipro

 

WIPRO’S GENERIC INTERNATIONAL STRATEGIES


Business strategies are generally classified into four generic types—Low/ Stable technology strategy, Advanced management skill strategy, Dynamic high-technology strategy, and Product-market rationalisation strategy.
Wipro currently follows the product market rationilisation strategy, but is making an effort to adopt the more difficult but profitable dynamic high-technology strategy, in pursuit of which they have set-up a global R&D division and India Development Centres for TANDEM and SUN, their primary customers and business partners in the international market.
Analysis of Competition


At Wipro, the essence of strategy formulation for international markets is coping with intense competition. Yet it is easy to view the competition narrowly considering that Wipro is the country’s second largest Infotech company. Moreover, the global software market is highly segmented, and competitive forces go well beyond existing players in the industry.
The state of competition in all industry depends on five basic forces as enunciated by Michael Porter in his highly acclaimed work. `Competitive Advantage’. We will now analyze Wipro’s international business environment based on this approach.
Threat of new entrants. This is a major threat faced by any organisation, especially so in the software industry, which is growing at the rate of 50%, thus making it very attractive for potential entrants.
Threat from existing competitors. Big names are already present in the industry like TCS. TISL, HCL, HP with more international players like Oracle, Texas Instruments, Motorola and SISL set to make major inroads into the market. But Wipro, being well—entrenched in the industry, has generally been able to meet the challenges posed by the competitors.
Bargaining power of suppliers. Wipro does very little outsourcing for its projects, and hence this is not perceived as a major threat.
Bargaining power of buyers. This is the biggest threat Wipro faces today. Presently, 50% of its revenue from software exports is from customers like TANDEM, SUN, IBM, STRATACOM and NBC. Dependence on a few major customers gives Wipro little scope for maneuvre. The company has made substantial in investments in exclusive software development centres (SDCs) or SUN and TANDEM, as mentioned earlier, in the hope of creating and maintaining a long-term business relationship. But with more and more exacting standards emerging in the software industry because of the intense competition from the MNCs, Wipro has to continually upgrade the quality of its work in order to justify their huge investments in SDCs.
Threat from substitute products/services.  Currently, there is no major threat since the market is highly segmented with different companies focussing on specialized areas of product development, a ready source of competitive advantage. Wipro’s greatest strengths are technology and people, and they have managed to use them successfully to execute major products for foreign clients like AT&T and STRATACOM. Figure 1 presents the major and minor threats facing Wipro.

 

Tables 1(a)—(d) give data upto 1995. In Table 2 Wipro’s performance details upto 2000 are given
TABLE 1(a) International Business Division Performance

 

Year Exports turnover (Rs. Crores) Growth (%)
1992-93 31
1993-94 50 61
1994-95 76 52

 

TABLE 1(b) Export Destination

1992-93

 

Region Exports

(Rs. Crores)

Per cent of total exports
North America 20 64.5
Middle East 6 19.5
Europe 4 13.0
Others 1 3.0
Total 31  

 

 

1993-94

 

Region Exports

(Rs. Crores)

Per cent of total exports
North America 32 64.0
Middle East 11 22.0
Europe 6 12.0
Others 1 2.0
Total 50  

 

 

1994-95

 

Region Exports

(Rs. Crores)

Per cent of total exports
North America 40 52.5
Middle East 10 13.1
Europe 17 22.0
Others 9 12.3
Total 76  

 

TABLE 1(c) Export by Location

 

Year On-site (by value, %) Off-site ((by value, %)
1992-93 66 34
1993-94 61 39
1994-95 59 41

 

 

TABLE 1(d) Productivity (Exports per Employee)

 

Company 1992-93

(Rs)

1993-94

(Rs)

1994-95

(Rs)

Wipro 160.000 240.000 350.000
TISL 150.000 260.000 375.000
TCS 200.000 300.000 400.000
HCL-HP 190.000 340.000 540.000

 

 

 

TABLE 2 :   Overall Performance of Wipro Infotech

 

Year Total sales

(Rs million)

Sales growth

(%)

Export

(Rs. Million)

Growth

(%)

Operating profit for international software business
1999-2000 23129 26 10506 66 18.5
1998-1999 18308 28 6325 61 14.3
1997-1998 14269 13 3917 51 11.7
1996-1997 12630 9 2586 52  
1995-1996 11610   760    

 

 

Table 2 summarises the performance of Wipro between 1995-96 to 1999—2000 in terms of sales, sales growth, export, export growth and operating profit for the international software business. There has been impressive export growth of 66%. ‘The software exported stood at Rs 10,506 million in 1999-2000 showing an operating profit of 18.5%.
RESEARCH ACTIVITIES AT WIPRO
The collection, analysis and dissemination of information is increasingly becoming a key factor in a firm’s business agenda. Towards this end, a great deal of market research activities is undertaken to aid managers and specialized work groups to make quick and effective decisions. Broadly, the activities undertaken by Wipro are as follows:
Corporate Responsibility Research
• Consumer’s right to know studies
• Cross-national managerial studies
Corporate Strategy Research
• Corporate business unit portfolio studies
• Analysis_of strength of channel relationships

  • Analysis of shared costs of activities of business units
    • Resource studies
    • Economic and political trend analysis
    • Competitor studies

Market Research
• Market potential studies
• Market share analysis
• Market characteristics studies
• Distribution channel studies
• Sales analysis
• Competitor product studies
Marketing Research
• Product/Service testing
• Price elasticity studies
• Branding studies

 

 

Questions

 

  1. Do a SWOT analysis for Wipro in the Indian market context and discuss the appropriateness (or otherwise) of its domestic strategy.
  1. Are Wipro’s forays into the international markets with respect to entry, mode, etc. right? If not, what are the alternatives you would suggest?
  2. How can Wipro’s corporate strategy be kept flexible enough to adapt to increasing competition and changing realities
  1. Attempt a ‘technology road map’ for Wipro for the next five years Chart a course of strategy w.r.t. markets, which the company can adopt.

 

What lessons can other MNCs learn from the experience of McDonald’s

 

Need Answer Sheet of this Question paper, contact

aravind.banakar@gmail.com

ARAVIND – 09901366442 – 09902787224

 

 

 

 

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