International business management

SUB: INTERNATIONAL BUSINESS MAX MARKS: 100

Masters Program in Business Administration (MBA)

Note :- Solve any 4 Case Study

All Case Carry equal Marks.

INDIAN SCHOOL OF MANAGEMENT AND STUDIES


CASE I

A GLOBAL PLAYER?

This is one game that India has permanently lost to its arch-rival Pakistan -

manufacturing and exporting sports goods. Historically, when India and Pakistan were

one before 1947, Sialkot, now in Pakistan, used to be the world's largest production

centre for badminton, hockey, football, volleyball, basketball, and cricket equipment.

After the creation of Pakistan, Jalandhar became the second centre after Hindus in

the trade migrated to India. Soon Jalandhar overtook Sialkot and till the early 1980s it

remained so. However when the face of the trade began to change in the 1980s and

import of quality leather and manufacturing equipment became a necessity for

quality production, Pakistan wrested the initiative as India clung it its policies of

discouraging imports through high duties and restrictions. As it was, the availability of

labor and skills was a common factor in both Sialkot and Jalandhar, but with Sialkot

having the advantage of easier entry, most of the world's top sports manufactures

and procedures developed an association with local industry in Sialkot that continues

even today. Ten years later, in the early 1990s, when Manmohan Singh liberalised the

norms for importing equipment and raw material required for producing sports goods,

it was too late as majority of the global majors had already shifted base to Sialkot.

In 1961 the late Narinder Mayor started the first large scale sports goods

manufacturing unit, Mayor & Company, thereby laying the foundation of an organized

industry. Even today, more than 70 percent of the industry functions in an

unorganized manner. Starting with soccer balls, Mayor expanded to produce

inflatable balls like volleyballs, basketballs, and rugby balls. Today his two sons Rajan

& Rajesh have built it up into five companies engaged in a wide array of businesses,

though sports goods remain the group's core business. While the parent trading

company, Mayor & Company, remains the leading revenue-earner to the tune of Rs.

55 crore annually out of a total group turnover of Rs. 85 crore-plus, Mayor's second

venture, the Indo-Australian Mayor International Limited, is spinning another Rs. 15

crore. Mayor International is a 100 per cent export-oriented unit (EOU) exclusively

manufacturing and exporting golf and tennis balls.

The product portfolio of the company comprises the following:

Inflatable Balls

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Soccer balls and footballs (Professional, Indoor, Match and Training, leisure

toy)

Volley balls, rugby balls (Volley balls and Beach Volley Balls)

Australian rugby, hand balls (English League, Union and touch) (Australian

rules, Australian Rugby League balls with laces)

Boxing Equipment

Boxing and punching balls (Boxing and Punching Balls, Head Gear, Gloves,

Punching Mitts and Kits Punching Bags & Bag Sets)

Gloves

Goal keeper's gloves (Football / Soccer)

Boxing gloves

Cricket Equipment

Worldwide distributor for Spading Cricket Bats, Balls and Protective

equipment.

HOCKEY EQUIPMENT

Worldwide distributor for Spading Hokey Sticks, Balls & Protective equipment

Based in Delhi, Rajan Mayor, 41 is the CMD of the group, which also comprises an IT

division working on B2B and B2C solutions; Voyaguer World Travels in the tourism

sector; a houseware exports division specializing in stainless steel kitchenware,

ceramics, and textiles; and a high school. Younger brother Rajesh, 34, is the

executive director and looks after all the divisions operating in Jalandhar. Technical

director Katz Nowaskowski divides his time equally between India and Australia,

where he looks after the group’s interests. “While inflatable balls are our prime

competence in our core business, we are presently focusing on golf balls, for which

we are the sole producers in South Asia. Out of a total Rs. 300 crore of sports goods

business generated in domestic market, most of which is supplied by the unorganized

players, golf balls constitute a miniscule amount and therefore we came up with a

100 per cent EOU for producing golf balls. Later the same facility was utilized with

little moderation for tennis balls too,” says Nowaskowaski.

Clarifying that the sports good industry in India only includes playing

equipment and not apparels or shoes, D K Mittal, chairman of the Sports Goods

Export Promotion Council and joint secretary in the Ministry of Commerce, has

certified Mayor group as the number one exporter since 1993 till date, barring 1996.

However, SGEPC secretary Tarun Dewan points out that being the number one

exporter does not mean that Mayor is the number one brand being exported.

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“Actually we have tie ups Dunlop, Arnold Palmer, and Fila for manufacturing golf

balls. For footballs and volleyballs we have association with Adidas, Mitre, Puma,

Umbro, and Dunlop. We manufacture soccer World Cup and European Cup replicas

for Adidas, which is a huge market. Only 400 balls used for actual play in the World

Cup are manufactured in Europe & that too only for sentimental reason, otherwise we

are capable of delivering products of the same, if not better quality. Now since we

manufacture balls for them, we cannot antimonies them by producing balls of similar

quality with our own brand name. Secondly, I agree that competing with such big

quaint in the world market in terms of branding is a task that is well beyond our reach

at the moment. However, we are trying to brand ourselves in the domestic market

and that is one of the prime focus in the coming year,” says Rajan.

Coca-Cola, Unilever, McDonald’s, American Airlines, Disney club, and other

such big brands come up with huge orders at tines for golf balls with their logos for

promotional schemes. However, there is no mention of the producing country since

these companies do not want to show that balls they deliver in the US are being

produced in Asia, “Not only is our quality good enough; labour in India is cheap

enough to churn out a much less expensive product in the end. Yet, the main threat

to our industry comes from countries like Taiwan and China, who have already

cornered a chunk of world markets in tennis, badminton, and squash rackets. This is

primarily because of two reasons – slow response to our needs in tune with the

market requirements from the government and lack of infrastructure. And most

importantly, tags ‘Made in China’ or ‘Made in Taiwan’ are more acceptable in the

West than ‘Made in India’ or ‘Made in Pakistan’. One of the mottos of the Mayor group

has been to make ‘Made in India’ an acceptable label in the West. For that we stress

quality, timely delivery, and competent rates. Yet, a lot depends on perception value,

which in our case is sadly on the negative side, much owing to our government’s

stance over the years. Things might be improving, but the pace is very slow and as

our economy drifts towards a free market scenario supinely, it might just prove to be

too little too late in the end,” says Rajesh.

Today, Mayor group is sitting pretty as its competitors, Soccer International

Sakay Trades, Savi, Wasan, Cosco, Nivia and Spartan are only trying to catch up in

the inflatables category. With 1.2 million dozen golf balls, Mayor is way ahead of its

competitors. The company is planning to enhance its manufacturing capacity to 1.5

million dozen golf next fiscal. With approval from the world’s two top golf associations

– the US PGA and RNA of Scotland, demand for its product is not a problem, the

company’s senior marketing officials point out. With the markets in Mayor’s current

export destinations – Europe, North America, Australia, and Nw Zealand – all set to

expand in the coming years after the present slump, Mayor wants to expand its

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sports goods business that caters to 60 per cent of its overall exports. Though 40 per

cent of exports come from house ware manufactured in Delhi and Mumbai, with

export centres in the same countries for its sports goods, just about maintaining this

business at its present state, and concerning entirely on sports goods is what the

mayors are intent on.

With nearly 2000 skilled workforce; quality certification from ISO 9001:2000

and ISO 14001: 2004; and having spread to more than 40 countries, Mayor and

Company is obviously sitting pretty.

Questions

1. What routes of globalization has the Mayor group chosen to go

global? What other routes could it have taken?

2. What impediments are coming in the Mayor group’s way becoming a

major and active player in international business?

3. Why is ‘Made in India’ not liked in foreign markets? What can be done

to erase the perception?

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CASE II

ARROW AND THE APPAREL INDUSTRY

Ten years ago, Arvind Clothing Ltd., a subsidery of Arvind Brands Ltd., a

member of the Ahmedabad based Lalbhai Group, signed up with the 150-year old

Arrow Company, a division of Cutlet Peabody & Co. Inc., US, for licensed manufacture

of Arrow shirts in India. What this brought to India was not just another premium

dress shirt brand but new manufacturing philosophy to its garment industry which

combined high productivity, stringent in-line quality control, and a conducive factory

ambience.

Arrow’s first plant, with a 55,000 sq. ft. area and capacity to make 3,000 to

4,000 shirts a day, was established at Bangalore in 1993 with an investment of Rs. 18

crore. The conditions inside – with good lighting on the workbenches, high ceilings,

ample elbow room for each worker, and plenty of ventilation, were a decided contrast

to the poky, crowded, and confined sweatshops characterizing the usual Indian

apparel factory in those days. It employed a computer system for translating the

designed shirt’s dimensions to automatically mark the master pattern for initial

cutting of the fabric layers. This was installed, not to save labour but to ensure cutting

accuracy and low wastage of cloth.

The over two-dozen quality checkpoints during the conversion of fabric to

finished shirt was unique to the industry. It is among the very few plants in the world

that makes shirts with 2 ply 140s and 3 ply 100s cotton fabrics using 16 to 18 stitches

per inch. In March 2003, the Bangalore plant could produce stain-repellant shirts

based on nanotechnology.

The reputation of this plant has spread far and wide and now it is loaded

mostly with export orders from renowed global brands such as GAR, Next, Espiri, and

the like. Recently the plant was identified by Tommy Hilfiger to make its brand of

shirts for the Indian market. As a result, Arvind Brands has had to take over four other

factories in Bangalore on wet lease to make the Arrow brand of garments for the

domestic market.

In fact, the demand pressure from global brands which want to out outscore

from Arvind Brands, is so great that the company has had to set up another large for

export jobs on the outskirts of Bangalore. The new unit of 75,000 sq. ft. has cost Rs.

16 crore and can turn out 8,000 to 9,000 shirts per day. The technical collaborates

are the renowned C&F Italia of Italy.

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Among the cutting edge technologies deployed here are a Gerber make CNC

fabric cutting machine, automatic collar and cuff stitching machines, pneumatic

holding for tasks like shoulder joining, threat trimming and bottom hemming, a

special machine to attach and edge stitch the back yoke, foam finishers which use air

and steam to remove creases in the finished garment, and many others. The stitching

machines in this plant can deliver up to 25 stitches per inch. A continuous monitoring

of the production process in the entire factory is done through a computerized

apparel production management system, which is hooked to every machine. Because

of the use of such technology, this plant will need only 800 persons for a capacity

which is three that of the first plant which employs 580 persons.

Exports of garments made for global brands fetched Arvind Brands over Rs. 60

crore in 2002, and this can double in the next few years, when the new factory goes

on full stream. In fact, with the lifting of the country-wise quota regime in 2005, there

will be a surge in demand for high quality garments from India and Arvind is already

considering setting up two more such high tech export-oriented factories.

It is not just in the area of manufacture but also retailing that the arrow brand

brought a wind of change on the Indian scene. Prior to its coming, the usual Indian

shirt shop used to be a clutter of racks with little by way of display. What Arvind

Brands did was to set up exclusive showrooms for Arrow shirts in which the functional

was combined with the aesthetic. Stuffed racks and clutter were eschewed. The

products were displayed in such a manner that the customer could spot their qualities

from a distance. Of course, today this has become standard practice with many other

brands in the country, but Arrow showed the way. Arrow today has the largest

network of 64 exclusive outlets across India. It is also present in 30 retail chains. It

branched into multi-brand outlets in 2001, and is present in over 200 select outlets.

From just formal dress shirts in the beginning, the product range of Arvind

Brands has expanded in the last ten years to include casual shirts, T-shirts, and

trousers. In the pipeline are light jackets and jeans engineered for the middle age

paunch. Arrow also tied up with the renowed Italian designer, Renato Grande, who

has worked with names like Versace and Marlboro, to design its Spring / Summer

Collection 2003. The company has also announced its intention to license the Arrow

brand for other lifestyle accessories like footwear, watches, undergarments,

fragrances, and leather goods. According to Darshan Mehta, President, Arvind Brands

Ltd., the current turnover at retail price of the Arrow brand in India is about Rs. 85

crore. He expects the turnover to cross Rs. 100 crore in the next few years, of which

about 15 per cent will be from the licensed non-clothing products.

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In 2005, Arvind Brands launched a major retail initiative fir all its brands.

Arvind Brands licensed brands (Arrow, Lee and Wrangler) had grown at a healthy 35

per cent rate in 2004 and the company planned to sustain the growth by increasing

their retail presence. Arvind Brands also widened the geographical presence of its

home-grown brands, such as Newport and Ruf-n-Tuf, targeting small towns across

India. The company planned to increase the number of outlets where its domestic

brands would be available, and draw in new customers for readymades. To improve

its presence in the high – end market, the firm started negotiating with an

international brand and is likely to launch the brand.

The company has plans to expand its retail presence of Newport Jeans, from

1200 outlets across 480 towns to 3000 outlets covering 800 towns.

For a company ranked as one of the world’s largest manufacturers of denim

cloth and owners of world famous brands, the future looks bright certain for Arvind

Brands Ltd.

Company Profile

Name of the Company : Arvind Mills

Year of Establishments : 1931

Promoters : Three brothers – Katurbhai, Narottam Bhai and

Chimnabhai

Divisions : Arvind Mills was spilt in 1993 into three units –

textiles, telecom and garments. Arvind Brands Ltd.

(textile unit) is 100 per cent subsidiary of Arvind

Mills.

Growth Strategy : Arvind Mills has grown through buying – up of sick

units, going global and acquisition of Germanand

US brand names.

Questions

1. Why did Arvind Mills choose globalization as major route to achieve

growth when domestic market was huge?

2. Hoe does lifting of Country-wise quota regime’ help Arvind Mills?

3. What lessons can other Indain business learn from the experience of

Arvind Mills?

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CASE III

AT THE RECEIVING END !

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 traveling salesman, Ray Kroc, came to sell milkshake mixers. The

popularity of their $O. 15 hamburgers 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 percent of its

revenues are generated outside of the United States. The key to the company’s

success is its ability to standardize 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 system wide sales are only about one-fifth of Exxon Mobil or Wal-Mart 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 is a frequent target of criticism by anti-globalization 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 globalization. Jose Bove organized fellow sheep farmers in France, and the

group led by him drove tractors to the construction site of a new McDonald’s

restaurants 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, traveled to Seattle in 1999, as part of the French

delegation to lead the protest against commercialization 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 transhed at McDonald’s/ As Bove explained, his movement was for

small farmers against industrial farming, brought about by globalization. For them,

McDonald’s was a symbol of globalization, implying the standardization 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

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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, labor 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 entered India in the late 1990s. On its entry, the company encountered a

unique situation. Majority of the Indians did not eat beef 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 sometimes, 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 unrecognized, 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,

paints an yearly ‘Big Mac Index’ that uses the price of a Big Mac in different foreign

currencies to access exchange rate distortions.

Questions :

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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?

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CASE IV

BPO-BANE OR BOON ?

Several MNCs are increasingly unbundling or vertical disintegrating their activities.

Put in simple language, they have begun outsourcing (also called business process

outsourcing) activities formerly performed in-house and concentrating their energies

on a few functions. Outsourcing involves withdrawing from certain stages/activities

and relaying on outside vendors to supply the needed products, support services, or

functional activities.

Take Infosys, its 250 engineers develop IT applications for BO/FA (Bank of America).

Elsewhere, Infosys staffers process home loans for green point mortgage of Novato,

California. At Wipro, five radiologists interpret 30 CT scans a day for Massachusetts

General Hospital.

2500 college educated men and women are buzzing at midnight at Wipro

Spectramind at Delhi. They are busy processing claims for a major US insurance

company and providing help-desk support for a big US Internet service provider – all

at a cost upto 60 percent lower than in the US. Seven Wipro Spectramind staff with

Ph.Ds in molecular biology sift through scientific research for western pharmaceutical

companies.

Another activist in BPO is Evalueserve, headquartered in Bermuda and having main

operations near Delhi. It also has a US subsidiary based in New York and a marketing

office in Australia to cover the European market. As Alok Aggarwal (co-founder and

chairman) says, his company supplies a range of value – added services to clients

that include a dozen Fortune 500 companies and seven global consulting firms,

besides market research and venture capital firms. Much of its work involves dealing

with CEOs, CFOs, CTOs, CLOs and other so-called C-level executives.

Evalueserve provides services like patent writing, evaluation and assessment of their

commercialization potential for law firms and entrepreneurs. Its market research

services are aimed at top-rung financial service firms, to which it provides analysis of

investment opportunities and business plans. Another major offering is multilingual

services. Evalueserve trains and qualifies employees to communicate in Chinese,

Spanish, German, Japanese and Italian, among other languages. That skill set has

opened market opportunities in Europe and elsewhere, especially with global

corporations.

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ICICI Infotech Services in Edison, New Jersey, is another BPO services provider that is

offering marketing software products and diversifying into markets outside the US.

The firm has been promoted by $2-billion ICICI Bank, a large financial institution in

Mumbai that is listed on the New York Stock Exchange.

In its first year after setting up shop in March 1999, ICICI Infotech spent $33 million

acquiring two information technology services firms in New Jersy – Object Experts and

lvory Consulting – and Command Systems in Connecticut. These acquisitions were to

help ICICI Infotech hit the ground in the US with a ready book of contracts. But it soon

found US companies increasingly outsourcing their requirements to offshore

locations, instead of hiring foreign employees to work onsite at their offices. The

company found other native modes for growth. It has started marketing its products

in banking, insurance and enterprise source planning among others. It has ear-------

$10 million for its next US market offensive, which would go towards R & D and back-

end infrastructure support, and creating new versions of its products to comply with

US market requirements. It also has a joint venture – Semantik Solutions GmbH in

Berlin, Germany with the Fraunhofer Institute for Software and Systems Engineering,

which is based in Berlin, Germany with the Fraunhofer Institute for Software and

Systems Engineering, which is based in Berlin and Dortmund, Germany, Fraunhofer is

a leading institute in applied research and development with 200 experts in software

engineering and evolutionary information.

A relatively late entrant to the US market, ICICI Infotech started out with plain vanilla

IT services, including operating call centers. As the market for traditional IT services

started weakening around mid-2000, ICICI Infotech repositioned itself as a “Solutions”

firm offering both products and services. Today, it offers bundled packages of

products and services in corporate and retail banking and insurance, among other

areas. The new offerings include data center and disaster recovery management and

value chain management services.

ICICI Infotech’s expansion into new overseas markets has paid off. Its $50 million

revenue for its latest financial year ending March 2003 has the US operations

generating some $15 million, while the Middle East and Far East markets brought in

another $9 million. It now boasts more than 700 customers in 30 countries, including

Dow Jones, Glaxo – Smithkline, Panasonic and American Insurance Group.

The outsourcing industry is indeed growing from strength. Though technical support

and financial services have dominated India’s outsourcing industry, newer fields are

emerging which are expected to boost the industry many times over.

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Outsourcing of human resource services or HR BPO is emerging as big opportunity for

Indian BPOs with global market in this segment estimated at $40-60 billion per

annum. HR BPO comes to about 33 percent of the outsourcing revenue and India has

immense potential as more than 80 percent of Fortune 1000 companies discuss

offshore BPO as a way to out costs and increase productivity.

Another potential area is ITES/BPO industry. According to a NASSCOM Survey, the

global ITES/BPO industry was valued at around $773 billion during 2002 and it is

expected to grow at a compounded annual growth rate of nine percent during the

period 2002-06. NASSCOM lists the major indicators of the high growth potential of

ITES/BPO industry in India as the following :

During 2003-04, The ITES/BPO segment is estimated to have achieved a 54 percent

growth in revenues as compared to the previous year. ITES exports accounted for

$3.6 billion in revenues, up from $2.5 billion in 2002-03. The ITES-BPO segment also

proved to be a major opportunity for job seekers, creating employment for around

74,400 additional personnel in India during 2003-04. The number of Indians working

for this sector jumped to 245,500 by March 2004. By the year 2008, the segment is

expected to employ over 1.1 million Indians, according to studies conducted by

NASSCOM and McKinsey & Co. Market research shows that in terms of job creation,

the ITES-BPO industry is growing at over 50 percent.

Legal outsourcing sector is another area India can look for Legal transcription

involves conversion of interviews with clients or witnesses by lawyers into documents

which can be presented in courts. It is no different from any other transcription work

carried out in India. The bottom-line here is again cheap service. There is a strong

reason why India can prove to be a big legal outsourcing industry.

India, like the US, is a common-law jurisdiction rooted in the British legal tradition.

Indian legal training is conducted solely in English. Appellate and Supreme Court

proceedings in India take place exclusively in English. Indian legal opinions are

written exclusively in English. Due to the time-zone differences, night time in the US

is daytime in India which means that clients get 24 hour attention, and some projects

can be completed overnight. Small and mid-sized business offices can solve staff

problems as the outsourced lawyers from India take on the time consuming labour

intensive legal research and writing projects. Large law firms also can solve problems

of overstaffing by using the on-call lawyers.

Research firms such as Forrester Research, predict that by 2015, more than 489,000

US lawyer jobs, nearly eight percent of the field, will shift abroad.

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Many more new avenues are opening up for BPO services providers. Patent writing

and evaluation services are markets set to boom. Some 200,000 patent applications

are written in the western world annually, making for a market size of between $5

billion and $7 billion. Outsourcing patent writing service could significantly lower the

cost of each patent application, now anywhere between $12,000 and $15,000 apiece

– which help expand the market.

Offshoring of equity research is another major growth area. Translation

services are also becoming a big Indian plus. India produces some 3,000 graduates in

German each year, which is more than in Switzerland.

Though going is good, the Indian BPO services providers cannot afford to be

complacent, Phillippines, Mexico and Hungary are emerging as potential offshore

locations. Likely competitor is Russia, although the absence of English speaking

people there holds the country back. But the dark horse could be South Africa and

even China.

BPO is based on sound economic reasons. Outsourcing helps gain cost

advantage. If an activity can be performed better or more cheaply by an outside

supplier, why not outsource it ? Many PC makers, for example, have shifted from in-

house assembly to utilizing contract assemblers to make their PCs. CISCO outsources

all productions and assembly of its routers and switching equipment to contract

manufacturers that operate 37 factories, all linked via the Internet.

Secondly, the activity (outsourced) is not crucial to the firm’s ability to gain

sustainable competitive advantage and won’t hollow out its core competence,

capabilities, or technical knowhow. Outsourcing of maintenance services, data

processing, accounting, and other administrative support activities to companies

specializing in these services has become common place. Thirdly, outsourcing

reduces the company’s risk exposure to changing technology and / or changing buyer

preferences.

Fourthly, BPO streamlines company operations in ways that improve

organizational flexibility, cut cycle time, speedup decision making and reduce

coordination costs. Finally, outsourcing allows a company to concentrate on its crore

business and do what it does best. Are Indian companies listening? If they listen, BPO

is a boon them and not a bane.

Questions

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1. Which of the theories of International trade can help Indian services

providers gain competitive edge over their competitors?

2. Pick up some Indian services providers. With the help of Michael

Porter’s diamond, analyze their strengths and weaknesses as active

players in BPO.

3. Compare this case with the case given at the beginning of this

chapter. What similarities and dissimilarities do you notice? Your

analysis should be based on the theories explained in this chapter.

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CASE V

THE SAGA CONTINUES

It was the talk of the town in Bangalore during the late 1970s and early 1980s. The

plant was coming up on the Bangalore – Yelahanka Road, about 20 km from the city.

Everything the people over three did became a folklore. The buildings were huge with

wonderful architecture, beautifully built with wide roads and huge spaces. Should a

situation demand, the entire plant could be dismantled, bundled up, loaded into

trucks and ferried to other places. Lighting inside the building had to be seen to be

believed. Interiors had to be seen to be believed. Washrooms, stores, reception,

canteen, healthcare, had to be seen to be believed. It had never happened

elsewhere. It was amazing, the boss was not addressed as Sir, he was called Mr. ----

and so ! The yellow painted buses on the city roads made a delightful sight. Legends

were fold about the two gentlemen who founded the company.

An interesting story is told about how one of the surviving founders (Larsen who lived

till 2003) visited the Bangalore plant once a year, he stayed in a hotel on his own,

hired his own cab, went to the plant and greeted every employee, from the top brass

down to the last person in the hierarchy. Story is also told about how, on one such

visit Larsen went to the reception and asked for permission to enter the plant. Not

knowing who he was, the young lass in reception room made him wait for half-an-

hour. By luck, someone recognized him.

A budding author captured all these and many more in his first book, which became a

big hit with all the teachers and students in different colleges buying and reading it.

If cannot be anything other than L & T, the huge engineering and construction multi-

plant organization, founded in 1938 by two Danish engineers, Henning Holck – Larsen

and Soren Kristin Toubro.

Henning Holck – Larsen and Soren Kristin Toubro, school – mates in Denmark, would

not have dreamt, as they were learning about India in history classes that they would,

one day, create history in that land. In 1938, the two friends decided to forgo the

comforts of working in Europe and started their own operation in India. All they had

was a dream. And the courage to dare. Their first office in Mumbai (Bombay) was so

small that only one of the partners could use the office at a time! Today, L & T is one

of India’s biggest and best known industrial organizations with reputation for

technological excellence, high quality of products and services and strong customer

orientation.

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As on today, L & T is a 62 business conglomerate with turnover of Rs. 18,363 crore

(2006-07), with the script commanding Rs. 2400 in the bourses.

No, L & T is not sitting pretty. It want to hit Rs. 30,000 crore turnover mark by 2010

and is busy restructuring, sniffing new pastures, grooming new talent and projecting

the new company credo – “It’s all about Imagineering.” With the sole idea of creating

several MNCs within, with footprints across nations, L & T is shedding the old

economy and embracing the emergent opportunities and challenges.

Stagnant Revenues and Low Margins

Not everything went the L & T way.

In the late nineties, the macro environment was ----- inspiring with stagnant revenues

and low margins, and L & T’s core strength, its engineers, were being constantly

weaned away by the fast-growing software sector. So, the general comment around

the bourses was about the credibility of the company, ‘L & T is a, good company but

its stock price, for some reason or the other, is fixed at the Rs. 140-210 band. So the

company had to change by keeping its core intact. As s senior executive remarks. “L

& T was perceived to be un –sexy and we had to create a new buzz around the

campuses.” The metamorphosis must echo through a whimper, not a bang. Even

before the company divested its cement business in 2003, which accounted for 25%

of its total sales, there were years of incremental and low visibility organizational

moves towards a new L & T.

At a 52-week high of Rs. 2400, the L & T scrip today looks dapper, a far cry from the

nineties when the stock price was in a state of flux. Much of the change started as a

ripple way back in 1999 when Naik took over as the CEO. He visited employees at all

levels across the organization and asked them what it took to transform the

company. The insights were mapped and implemented. “None of our employees

thought that we build shareholder value. They thought we build monuments,” the

chairman reminisces. The focus on people became stronger and formed the basis of

restructuring. It became the first old economy company to provide stock options to its

employees.

When Naik came to the helm, he set upon himself a 90 – day transformational

agenda. Portfolios were reviewed and a vision clearly chalked out. He drew up a

simple, brief, “ L & T has to be a multinational company and it has to deliver

shareholder value at any cost. At the end of 90 days, between July 22 and July 24,

1999, the company launched Project Blue Chip, which essentially fast – tracked

projects. The moot point was to complete all projects by February of the new

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millennium. Strategy formation teams were formed, portfolios reviewed and

structures were optimized. Young leadership was brought to the fore and the

business streamlining process kicked in.

Hiving off from 1999-2001, L & T went about debottle- necking its cement plants.

They were modernized and capitalized were raised from 12 million tones to 16 million

tones annually, with minimum costs. The mantra really was to grow the business and

then divest it as cement fell in the non-core category.

So, in September 2003, L & T sold its cement business to the Aditya Birla Group,

which resulted in the company’s Economic Value Add (EVA), an important indicator of

the financial health of the company, swinging from a negative Rs.350-crore to a

positive Rs.50-crore immediately. The move also enabled L&T to reduce its debt-

equity ratio from 1:1 to 0.2:1. Analysts took a positive view of the demerger, and re-

rated L&T as AAA from AA+ in 2004. From then on, began L&T’s transformation into a

lean and mean machine. In 2004, the company envisaged a growth curve for the next

five years. This marked the beginning of Project Lakshya, which was centered around

people, operations, capabilities and new ventures. The company set out with over

300 initiatives in hand, and also placed a rigorous risk management system. For

instance, any project above Rs. 1,000-crore needed the signature of the chairman.

Project Lakshya is known for targeting and selecting the right projects.

By now, the Indian economy had started witnessing unprecedented boom and despite

divesting the cement business, the L&T turnover scaled the Rs. 10,000 crore mark.

Alongside, the lucrative Middle East market was booming and L&T forayed into six

countries in the Gulf with joint ventures. “The idea was to develop a mini L&T in the

region,” observes a senior company executive. The company also set up

manufacturing facilities in China to leverage the cost structure. Exports in 2007

constituted 18% of net sales. With soaring revenues and operating margins, L&T

started benchmarking itself with the best in the world. Suddenly, the notion of an

Indian MNC became a reality.

L&T has big plans to foray into new businesses. The new businesses are:

Ship-building: L&T is getting into ship-building by building a world-class facility, and

already has a small shipyard in Hazira. Will build complex ocean going ships for the

first time in India.

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Power equipment: It is getting into power equipment in a big way. A JV with

Mitsubishi for super critical boilers, formed another with Toshiba for turbines on the

way.

Financial services: L&T is rapidly increasing its presence in infrastructure finance. It

is also planning to come up with a $1 billion infrastructure fund.

Railways: A new area, L&T aims to be an end-to-end solutions provider for the

railways, from track-laying to signaling to transmission, and others.

The global economic meltdown has hit L&T also, but lightly. Its order book at Rs.

71,650cr has not grown as expected. Delay in finalization of several government

projects as well as the slowdown in the overseas markets are the key reasons for the

lax in order inflow. The company, however, has maintained its forecast of a 25

percent growth in its order book for the fiscal 2010.

L&T’s, IT and financial subsidiaries too witnessed lackluster performance with profits

remaining stagnant.

L&T’s focus areas in future would be the Middle East and China in view of the

booming infrastructure market there.

Thus, for an institution that has grown to legendary proportions, there cannot and

must not be an ‘end’. Unlike other stories, the L&T saga continues.

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QUESTIONS

1. Having a strong presence in India, what drives L&T to think of

emerging a strong MNC ?

2. What challenges lies ahead of L&T ? How does it prepare to cope with

them ?

3. Will the L&T Saga continue ?

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CASE VI

THE ABB PBS JOINT VENTURE IN OPERATION

ABB Prvni Brnenska Strojirna Brno, Ltd. (ABB-PBS), Czechoslovakia was a joint

venture in which ABB has a 67 per cent stake and PBS a.s. has a 33 per cent stake.

This PBS share was determined nominally by the value of the land, plant and

equipment, employees, and goodwill, ABB contributed cash and specified

technologies and assumed some of the debt of PBS. The new company started

operations on April 15, 1993.

Business for the joint venture in its first two full years was good in most

aspects. Orders received in 1994, the first full year of the joint venture's operation,

were higher than ever in the history of PBS. Orders received in 1995 were 21/2 times

those in 1994. The company was profitable in 1995 and ahead of 1994s results with a

rate of return on assets of 2.3 per cent and a rate of return on sales of 4.5 per cent.

The 1995 results showed substantial progress towards meeting the joint

venture's strategic goals adopted in 1994 as part of a five-year plan. One of the goals

was that exports should account for half of the total orders by 1999. (Exports had

accounted for more than a quarter of the PBS business before 1989, but most of this

business disappeared when the Soviet Union collapsed), In 1995 exports increased as

a share of total orders to 28 per cent up from 16 per cent the year before.

The external service business, organized and functioning as a separate

business for the first time in 1995, did not meet expectations. It accounted for five

per cent of all orders and revenues in 1995, below the 10 per cent goal set for it. The

retrofitting business, which was expected to be a major part of the service business,

was disappointing for ABB-PBS, partly because many other small companies began to

provide this service in 1994, including some started by former PBS employees who

took their knowledge of PBS-built power plants with them. However, ABB-PBS

managers hoped that as the company introduced new technologies, these former

employees would gradually lose their ability to perform these services, and the

retrofit and repair service business would return to ABB-PBS.

ABB-PBS dominated the Czech boiler business with 70 per cent of the Czech

market in 1995, but managers expected this share to go down in the future as new

domestic and foreign competitors emerged. Furthermore, the west European boiler

market was actually declining because environmental laws caused a surge of

retrofitting to occur in the mid-1980s, leaving less business in the 1990s. Accordingly

ABB-PBS boiler orders were flat in 1995.

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Top managers at ABB-PBS regarded business results to date as respectable,

but they were not satisfied with the company's performance. Cash flow was not as

good as expected. Cost reduction had to go further. "The more we succeed, the more

we see our shortcomings", said one official.

Restructuring

The first round of restructuring was largely completed in 1995, the last year of

the three-year restructuring plan. Plant logistics, information systems, and other

physical capital improvements were in place. The restructing included :

Renovating and reconstructing workshops and engineering facilities

Achieving ISO 9001 for all four ABB-PBS divisions (awarded in 1995)

Transfer of technology from ABB (this was an ongoing project)

Installation of an information system

Management training, especially in total quality assurance and English language

Implementing a project management approach.

A notable achievement of importance of top management in 1995 was a 50

per cent increase in labour productivity, measured as value added per payroll crown.

However, in the future ABB-PBS expected its wage rates to go up faster than west

European wage rates (Czech wages were increasing about 15 per cent per year) so it

would be difficult to maintain the ABB-PBS unit cost advantage over west European

unit cost.

The Technology Role for ABB-PBS

The joint venture was expected from the beginning to play an important role

in technology development for part of ABB's power generation business worldwide.

PBS a.s. had engineering capability in coal-fired steam boilers, and that capability

was expected to be especially useful to ABB as more countries became concerned

about air quality. (When asked if PBS really did have leading technology here, a boiler

engineering manager remarked, "Of course we do. We burn so much dirty coal in this

country, we have to have better technology").

However, the envisioned technology leadership role for ABB-PBS had not been

realised by mid-1996. Richard Kuba, the ABB-PBS managing director, realised the

slowness with which the technology role was being fulfilled, and he offered his

interpretation of events :

"ABB did not promise to make the joint venture its steam technology leader.

The main point we wanted to achieve in the joint venture agreement was for ABB-PBS

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to be recognised as a full-fledged company, not just a factory. We were slowed down

on our technology plans because we had a problem keeping our good, young

engineers. The annual employee turnover rate for companies in the Czech Republic is

15 or 20 per cent, and the unemployment rate is zero. Our engineers have many

other good entrepreneurial opportunities. Now we've begun to stabilise our

engineering workforce. The restructuring helped. We have better equipment and a

clean and safer work environment. We also had another problem which is a good

problem to have. The domestic power plant business turned out to be better than we

expected, so just meeting the needs of our regular customers forced some

postponement of new technology initiatives."

ABB-PBS had benefited technologically from its relationship with ABB. One

example was the development of a new steam turbine line. This project was a

cooperative effort among ABB-PBS and two other ABB companies, one in Sweden and

one in Germany. Nevertheless, technology transfer was not the most important early

benefit of ABB relationship. Rather, one of the most important gains was the

opportunity to benchmark the joint venture's performance against other established

western ABB companies on variables such as productivity, inventory, and receivables.

Questions

1. Where does the joint venture meet the needs of both the partners?

Where does it fall short?

2. Why had ABB-PBS failed to realized its technology leadership?

3. What lessons one can draw from this incident for better management

of technology transfers?

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CASE VII

PERU

Peru is located on the west coast South America. It is the third largest nation of the

continent (after Brazil and Argentina), and covers almost 500,000 square miles

(about 14 per cent of the size of the United States). The land has enormous contrasts,

with a desert (drier than the Sahara), the towering snow-capped Andes mountains,

sparking grass-covered plateaus, and thick rain forests. Peru has approximately 27

million people, of which about 20 per cent live in Lima, the capital. More Indians (one

half of the population) live in Peru than in any other country in the western

hemisphere. The ancestors of Peru’s Indians were the famous Incas, who built a great

empire. The rest of the population is mixed and a small percentage is white. The

economy depends heavily on agriculture, fishing, mining, and services. GDP is

approximately $115 billion and per capita income in recent years has been around

$4, 300. In recent years the economy has gained some relative and multinationals

are now beginning to consider investing in the country.

One of these potential investors is a large New York based that is considering

a $25 million loan to the owner of a Peruvian fishing fleet. The owner wants to

refurbish the fleet and add one more ship.

During the 1970s, the Peruvian government nationalized a number of

industries and factories and began running them for the profit of the state. In most

cases, these state-run ventures became disasters. In the late 1970s, the fishing fleet

owner was given back his ships and allowed to operate his business as before. Since

then, he has managed to remain profitable, but the biggest problem is that his ships

are getting old and he needs and influx of capital to make repairs and add new

technology. As he explained it to the New York banker: “Fishing is no longer just an

art. There is a great deal of technology involved. And to keep costs low and be

competitive on the world market, you have to have the latest equipment for both

locating as well as catching and then loading and unloading the fish.”

Having reviewed the fleet owner’s operation, the large multinational bank

believers that the loan is justified. The financial institution is concerned, however,

that the Peruvian government might step in during the next couple of years and

again take over the business. If this were to happen it might take and additional

decade for the loan to be repaid. If the government were to allow the fleet owner to

operate the fleet the way he has over the last decade, the loan could be repaid within

seven years.

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Right now, the bank is deciding on the specific terms of the agreement. Once

these have been worked out, either a loan officer will fly down to Lima and close the

deal or the owner will be asked to come to New York for the signing. Whichever

approach is used, the bank realizes that final adjustments in the agreement will have

to be made on the spot. Therefore, if the bank sends a representative to Lima, the

individual will have to have the authority to commit the bank to specific terms. These

final matters should be worked out within the next ten days.

Questions

1. What are some current issues facing Peru? What is the climate for

doing business in Peru today?

2. What type of political risks does this fishing company need to

evaluate? Identify and describe them.

3. What types of integrative and protective and defensive

techniques can the bank use?

4. Would the bank be better off negotiating the loan in New York or

in Lima? Why?

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