Principles of management
1. Before 1997, Diebold manufactured its ATM machines in the United States and sold them internationally via distribution agreements, first with Philips Electronics NV and then with IBM. Why do you think Diebold choose this mode of expanding internationally? What were advantages and disadvantages of this agreement?
Diebold didn’t have the need to expand its business across the boarders before the 1980’s since they already had a massive demand inside of the United States. They used a key international business alliance, distribution alliances when they thought it was time to export their ATM machines internationally. Distribution alliances, such as joint ventures, allow a company to acquire new capacity and expertise, to enter related businesses or new geographic markets, to access greater resource or to share risks. In Diebold’s case, the company was first worried of entering foreign markets alone since it lacked the resources to establish an international presence. Therefore their alliance with Philips and later IBM, permitted them to use their global marketing, sales and service functions.
These two alliances made it possible for Diebold to use Philips and IBM distributions systems and knowledge about international markets, and reputation. Diebold could also take the advantage of using the Brand awareness among
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They also had to share profits with Philips and IBM.
2. What do you think prompted Diebold to alter its international expansion strategy in 1997 and start setting up wholly owned subsidiaries in most markets? Why do you think the company favored acquisitions as an entry mode?
Diebold wasn’t satisfied with their alliances with IBM in 1997. They also belived that now they had enough of experience and expertise to operate their business internationally themselves. With this in hand they thought that buying shares from IBM and wholly owning subsidiaries in most markets allowed them to attain greater market shares by gaining direct control over distribution. This also allowed the company to adapt better to local markets, and there were many differences in different markets in the way that the products and services were used.
Diebold therefore acquired local manufacturing presence, which facilitated local customization and drove forward sales. The company favored acquisitions as an entry mode since it permitted to generate cost efficiency through economies of scale, then increased value generation, revenue, market shares and reduced the cost of capital. Diebold’s acquisitions also reduced tax, and were beneficial entering new markets, when introducing new products and gained higher competitiveness.
3. Diebold entered China via a joint venture, as opposed to a wholly owned subsidiary. Why do you think they did this?
There were no acquisition opportunity for Diebold to enter China’s market. But they forecasted a very important potential of demand there. To be able to enter this new market they were therefore in need to share the risks and establish a manufacturing and distribution joint venture. By keeping an ownership in majority position, they shared the financial risks but kept high control over the production and distribution in China.
4. Is Diebold pursuing a global standardization strategy or a localization strategy? Do you think this choice of strategy has impacted upon its choice of entry mode? How?
Diebold is generally pursuing a localization strategy. There are local differences in the way ATMs are used according to the customs and uses of different markets, which requires certain adaptations to the local market.
Diebold headquarters believed that adapting themselves to local markets would be the key to increase products appeal and with that increase sales. For example, in part of Asia, many customers pay their utility bills with cash via ATMs. Then, to gain market shares, Diebold had to adapt its machines in the way that they can both accept and count stacks of up to 100 currency notes, and weed out counterfeits. However, we can also see that Diebold can use sometimes a global standardization strategy. With the acquisition of the Brazilian company Procomp, they found a potential large business area to deal with the electronic voting machine business. It had a huge success in Brazil, and as a consequence, Diebold saw an opportunity to globalize the electronic voting machine business to new areas and new markets. This strategy highly affected Diebold’s choice of entry mode.
Since they believed it was important to adapt its products to the local market, the fact that they operated a foreign acquisition binge and had mostly wholly owned subsidiaries where truly important. In those cases, Diebold could maintain operational control over its acquisitions, but it could also take advantage of foreign management and technical expertise, better integrate its ATMs machines developments and operate quick execution of strategic priorities according to the local market it was implemented in. As a consequence the need for local knowledge and better adaptation was reached by their acquisitions in foreign markets.
The Globalization of Health Care
1. What are the facilitating developments that have allowed health care to start globalizing?
The beginning of health care globalization appeared with diagnostic procedures and communication technologies. As there was a shortage of radiologists in the United States, the price of diagnostics was very high, and competent persons in other countries were available to read the images and make diagnostics, the demand for radiologists moved to foreign countries. Later, health care globalized because of the high cost of medical intervention in the United States. People can get the same service outside the United States boundaries, in Mexico, India or Singapore for example, for much cheaper, often including the travel expenses. Moreover, there was the fact that a lot of American citizens are not insured or are under insurance, which can lead to high copayments for expensive procedures, and then abroad treatment is far cheaper. Also, there is the emergence of high quality hospitals in foreign places. As the medical service is equivalent to the same service in the US, and the price is much cheaper, people tend to move abroad to get their hospitalization. Furthermore, the costs of insuring workforces are rising, which makes American companies to move to foreign markets. Finally, insurance companies use international hospitals to experiment payments for foreign treatments.
2. Who benefits from the globalization of health care? Who are the losers?
Considering the medical services provided outside the United States equivalent to the one received inside the United States, the first beneficiaries from the globalization of health care are the consumers, especially the ones who are not insured or under insurance. They will have access to the same service for a price that can be a lot lower than the one received in the United States. The second beneficiary from the globalization of health care is the country and the ones who provide the medical care outside the United States to US citizens. Indeed the demand increases as long as people move abroad to obtain medical care. The third beneficiaries from the globalization of health care are some insurance companies because the payout to hospitals and doctors would be much cheaper to medical care outside the United States. On the other hand, the people who are not benefiting from the globalization of health care are the United States and the medical operators inside the United States such as doctors, hospitals and surgeons. A globalization of health care leads to that they receive less patients and less demand for their services.
3. Are there any risks associated with the globalization of health care? Can these risks be mitigated? How?
The first concern and risk associated with the globalization of health care is the quality of medical care provided in other countries. However, this
risk is mitigated by the fact that medical tourists usually use new private hospitals where the medical care and medical standards are respected and are equivalent to the ones provided in the United States. Another risk could be the communication difficulties between patients and medical practitioners since it is likely to happen that the two parties would have different native languages. However, English tend to be worldly accepted, even among medical services, and a lot of medical persons in charge studied in the United States and have strong English education. Another concern could be the time in which the medical care is provided. Indeed, if there is a long distance between the home place of the patient and the location he will be operated, unexpected negative medical problems can happen to the patient if the needs should have been quickly provided.
4. On balance, do you think that the globalization of health care is a good thing, or not?
Usually, competition among industries is a good thing for the consumers and for the industry itself. For the customer, assuming that he is well informed of the quality of the service provided, he has the choice; a wide range of choice according to the price, the quality, the location etc… Consequently he can find the same medical service for a lower price, which is a good thing. Moreover, competition is a good thing for the medical sector too since competition always forces innovations, price lowering etc… Furthermore, if the United States is having troubles with their competitiveness of their medical system, medical tourism might force them to find a better insurance system to keep its citizens having medical care inside its borders. Globalization of health care would also help poor countries to develop high quality facilities.
1. In a world without trade, what would happen to the costs that American consumers would have to pay for Logitech’s products?
Wages highly differ from one country to another. The salaries from Taiwan and
China are extremely low compare to the US salaries. Consequently, the costs of production in the US would be a lot higher than the cost of production in low wages countries. Then, the price of a Logitech’s product would be very high because to cover its cost of production and make profit, the company would have to raise the price of the product. In the Logitech case, Wanda, retails for $40, of which only $3 is the production cost from China. This $3 cost would explode if the product was produced in the United States. In my opinion, the American consumers would actually not pay anything for a lot of products (especially digital) in a world without trade since many companies would probably never be able to expand.
2. Explain how trade lowers the costs of making computer peripherals such as mice and keyboards.
In the Logitech case, we can see that the company uses many countries to produce just one product. This permits to produce a high quality product at a low price. It is using two big concepts: economies of scale, and absolute advantage. Economies of scale are the cost advantages that a company obtains due to expansion and outsourcing. For example Logitech manufactures in Asia to reduce the cost of assembling. Absolute advantage is the ability of a party to produce more of a good or service than competitors using the same amount of resources. In other words it is when a country is good (better than others) at doing something. For example, Logitech does its research and development work in Switzerland and performs its marketing, finance, and logistic operations in Fremont, California. When all these trades are combined together, the costs are reduced to the minimum, and Logitech can make high quality computer peripherals such as mice and keyboards at a large quantity and a small price.
3. Use the theory of comparative advantage to explain the way in which Logitech has configured its global operations. Why does the company manufacture in China and Taiwan, undertake basic R&D in California and Switzerland, design products in Ireland, and coordinate marketing and operations from California?
Logitech use the best advantages of each country and labor specialization. It does basic R&D work in Switzerland with 200 employees, its headquarters are in Fremont, California with 450 employees as well as some R&D, the ergonomic designs are developed in Ireland, and the products are manufactured in Taiwan and China. It becomes very cost efficient to break up the work in different countries for different specialization.
4. Who creates more value for Logitech, the 650 people it employs in Fremont and Switzerland, or the 4,000 employees at its Chinese factory? What are the implications of this observation for the argument that free trade is beneficial?
As an example, let’s take the mouse Wang Yan that sells for $40 to American consumers. The 4,000 employees in China add only $3 value to the product, while the 650 people it employs in Fremont and Switzerland then increase $37 to it. It is obvious that these 650 employees add more values to the company. Indeed, it is them who are in charge of the R&D, designs, marketing etc… Consequently we can see that manufacturing requires more labor but actually add less value to the product itself. It allows us to conclude that free trade is highly beneficial because it permits to reduce labor costs when a large amount of unqualified labor is required.
5. Why do you think the company decided to shift its corporate headquarters from Switzerland to Fremont?
I suppose the company decided to shift its corporate headquarters from Switzerland to Fremont because of comparative advantage. It is well known that the Silicon Valley is the best place for Research and Development in the high technology field. I suppose they wanted to hire the best qualified employees in term of technological advances. America is also known as the best country to find financing and to operate marketing and logistics operations.
6. To what extent can Porter’s diamond help explain the choice of Taiwan as a major manufacturing site for Logitech?
In the Logitech case, Taiwan’s factor conditions are represented by the science-based Industrial Park in Hsinchu. The demand conditions are that the Taiwanese were already trained to deal with technology. The relating and supporting industries are that Taiwan was the best as building technology at the lowest cost. The firm strategy, structure, and rivalry were that Taiwan had no domestic rivalry; they provided the lowest cost.
7. Why do you think China is now a favored location for so much high technology manufacturing activity? How will China’s increasing involvement in global trade help that country? How will it help the world’s developed economies? What potential problems are associated with moving work to China?
China is now a favored location for so much high technology manufacturing activity because China’s workers are among the cheapest in the world. I also believe that because they receive so many high technology companies to manufacture to, they also became educated in a certain degree in the high technology manufacturing field. Then, even though some countries have even cheaper labor, they stay in China to not start over educating people. However, the workers are not treated in the developed countries standards. Consequently, China’s increasing involvement in global trade is helping that country to grow its economy, to improve labor’s treatment and to increase wages. The world’s developed economies benefit from free trade and globalization of production in term of product prices and quality of products. It also permits to expand businesses created in developed countries. Associated with moving work to China, the potential problems people argue are the fact that developed countries inhabitants lose jobs to foreign markets. Another problem is about the social responsibility and ethical issues. People argue that it is unethical to use the labor in China since it does not respect the rules of work from developed countries in term of social and ethical field.
1. Should Nike be held responsible for working conditions in foreign
factories that it does not own, but where subcontractors make products for Nike?
Some people would not held Nike responsible for working conditions in foreign factories that it does not own, but where subcontractors make product for Nike. Ethics and working conditions can be viewed as the product of the culture. It is then subcontractors that establish working conditions according to the law and customs there. Moreover Milton Friedman opinion would tell us than the responsibility of any company such as Nike is to maximize profit, which leads Nike to find the best cost-effective subcontractor.
2. What labor standards regarding safety, working conditions, overtime, and the like, should Nike hold foreign factories to: those prevailing in that country, or those prevailing in the United States?
There are many differences between developed countries, such as the United States, labor standards and under developed or developing countries labor standards. Nike should therefore hold the foreign factories to the labor standards prevailing in those countries. A lot of companies take advantage of the social and working characteristics of these countries, and if Nike would not, it would lose competitiveness, and there would be no point of moving out to foreign countries if it was to follow the US standards. It could have just stayed in the United States. However, it is possible for Nike to also find some ways to increase the working conditions in their factories to receive a better reputation overseas.
3) An income of $2.28 a day, the base pay of Nike factory workers in Indonesia, is double the daily income of about half the working population. Half of all adults in Indonesia are farmers, who receive less than $1 a day. Given this, is it correct to criticize Nike for the low pay rates of its subcontractors in Indonesia?
I think that we shouldn’t criticize Nike for the low pay rates of its subcontractors in Indonesia since this is the reason they moved to another
country: to lower the manufacturing costs. And the result of it is that it gives jobs to Indonesian people, and as we can see, well-paid jobs in this country’s standards. Moreover Nike is not responsible for the wages operated by the subcontractors as long as they follow the Indonesian laws. And Nike is also not responsible for the salary of farmers in this country. This is an Indonesian government issue.
4. Could Nike have handled the negative publicity over sweatshop better? What might it have done differently, not just from a public relations perspective, but also from a policy perspective?
Nike definitely had the possibility to handle the negative publicity over sweatshop better. They used defensive policy of denial, which cost a lot of money and which is not very efficient. Indeed this is less efficient that admitting the mistakes and trying to work on it.
5. Do you think Nike needs to make any changes to its current policy? Is so, what? Should Nike make changes even if they hinder the ability of the company to compete in the market place?
I believe Nike can make changes to its current policy. Even if the changes can affect a little the costs of the subcontractors, its current policy had already a very negative effect on Nike’s image in consumers’ opinions. Nike could make arrangements with international labor agencies to help it correct its working conditions issues, and working on strategies to improve its image of exploiting company oversees.
6. Is the WRC right to argue that the FLA is a tool of industry?
Sometimes the FLA is not able to carry independent audits of international sweatshop. And the WRC, which is an independent tool of organized labor, rejects to make appointments with businesses because it would “jeopardize its independence”. Thus, both organizations appear to not be a perfect tool for industry.
7. If sweatshops are a global problem, what might be a global solution to this problem?
There will always be countries with cheaper labor costs than others; the problem is that some countries do not respect some human rights. Then the solutions would be to economically sanction these countries by stopping trading with them as long as they use illegal methods.