Project assignment (section c)

INSTITUTE OF MANAGEMENT TECHNOLOGY, NAGPUR

PGDM - III (2013-15) Term-IV: (Sections C & D) STRATEGY FORMULATION

Faculty: Dr. Vikramaditya Ekkirala

Group Project: Evaluation Component: 15% Weightage

Group Project assignment comprises of class presentation (8%) and written report (7%) on the

topics/questions/analytical problems assigned to the respective teams.

A) Class Presentation by Student Teams (8% weightage):

1. Each team is required to make a class presentation for 30 minutes on the

topics/questions/analytical problems allotted by the Faculty. The presentations shall be made in session

numbers 18, 19 & 20 of Strategy Formulation course as per the sequence provided at the end of these

instructions. All members of a team should be present for their respective team’s presentation. Team-

wise list of topics is provided herewith along with questions to be addressed under each topic. Your

presentation should address these issues, questions and data requirements as the case may be.

2. The first slide of your presentations should contain the Topic, Team No., and Names of team

members contributing to this assignment along with their roll numbers.

3. All figures /diagrams appearing in the presentation should be appropriately captioned, numbered and

the sources mentioned below each of tables/diagrams.

4. All the members of the team shall contribute to this project and those not making any/adequate

contribution shall not be entitled for marks for this component.

5. Copying from any source /using directly downloaded material will attract zero marks for this

component in addition to other penalties as per the Institute’s policy. In case any material

submitted/presentation made by any team is identical to the material/ presentation of any other team in

your section or in the other section of this course, both the teams shall be liable for actions under the

anti-plagiarism clauses.

6. A soft copy of the presentation should be submitted to the Faculty by each team at any time before the

commencement of session No. 17 of Strategy Formulation course during office hours. The soft

copy of the presentation may be submitted by e-mail or in person. Attachments or supporting material

for your presentation which cannot be sent by e-mail should be submitted on a CD or may be brought

to the faculty on a portable device / pen drive for copying the same by the faculty. Presentations

submitted after this deadline shall not be accepted or considered for presentation and evaluation.

Presentations cannot be modified after the submission of soft copies (as above) and the same submitted

PPTs should be used for presentation.

B) Written Report submission by Student Teams (7% weightage):

7. Each team is required to submit a report on the topics/questions/problems for analysis assigned by

the faculty to respective teams duly complying with the following stipulations and specifications:

PGDM (2013-15) Term-IV: Sections C: Project Assignment 2

8. The report should be type written on A4 size paper in MS Word format with 1” margin on all sides.

Uniform formatting pattern of page size and font size with 1.5 line spacing should be maintained. All

pages (excluding the cover/Title page) should be serially numbered and the report should not contain

any hand-written material. Contents should be provided at the beginning. Unnecessary blank spaces

should NOT be left in any of the pages of the report.

9. The Title page of the report should contain the details of your section, team number and the names

and roll numbers of team members contributing to this project assignment, in addition to other details

as shown in the format given hereunder. The text of each question/topic/problem of analysis should be

mentioned before the start of their respective solutions/answers. Appropriate sub-headings may be

provided as needed.

10. Figures and/or diagrams given in the report should be captioned, numbered, indicating their

respective source. A separate list of figures/diagrams should be provided in the contents page.

11. Zero marks will be awarded for the entire evaluation component to all members of teams indulging

in plagiarism / academic dishonesty, in addition to other actions in accordance with Institute’s policy

and examination guidelines.

12. The written report should be your original work and the sources of information should be given in

the References at the end of the report. A hard copy of the report (along with a soft copy of the

same) should be submitted to the Faculty by each team, during office hours on any date before the

commencement of the session No. 17 of Strategy Formulation course without fail. Soft copies of

reports may be sent by email to the Faculty. Reports submitted late will not be accepted and will not be

considered for class presentation and evaluation. All the members of the team should contribute to the

assignment and those not making any/adequate contribution shall not be entitled for marks for this

assignment.

13. Presentation schedule:

Section Team No. Session No.

C

C-1 18

C-5 18

C-2 19

C-4 19

C-3 20

C-6 20

Dr. V. Ekkirala

Faculty – Strategy Formulation

Sections: C & D


Format for Title Page of Project Report:

Institute of Management Technology.

Nagpur

PGDM (2013-15) Term-IV

STRATEGY FORMULATION

Project Assignment Report

Submitted to Course Instructor:

Dr. Vikramaditya Ekkirala

On: (Date) *

By Team No._____ (Mention the team number) Section: C

Members (Names):

Name – Roll No.*

Name – Roll No.*

Name – Roll No.*

Name – Roll No.*

Name – Roll No.*

* Please write actual date of submission and the names & roll nos. of team members, in the space earmarked.

(BLANK SPACE for evaluation notes)

Do not write anything here


TOPICS / QUESTIONS / ANALYSIS

Team No.1

1. From the table given below, select a high profit industry and a low profit industry. Given the structure

of your selected industry, use the five forces framework (Porter) to explain why profitability has been

either high or low.

Industry Median ROE

1999-2007 (%) Leading Companies

Household & personal products

26.0 P&G; Kimberley-Clark; Colgate-Palmolive;

Pharmaceuticals 21.0 Pfizer, Johnson & Johnson; Merck

Petroleum 20.1 ExxonMobil; Chevron, ConocoPhillips

Tobacco 19.7 Altria, Reynolds American, Universal

Food consumer products 19.5 PepsiCo; Sara Lee; Conagra

Securities & investment banking

18.4 Morgan Stanley; Merrill Lynch; Goldman Sachs

Mining, crude oil production 18.0 Occidental Petroleum; Devon Energy

Medical products and equipment

17.7 Medtronic; Baxter International

Beverages 17.2 Coca-Cola; Anheuser-Busch

Food services 16.6 McDonald’s; Yum Brands

Scientific, photographic, and control equipment

15.6 Eastman Kodak; Danaher; Aligent

Diversified financials 15.5 General Electric; American Express

Commercial Banks 14.8 Citigroup; Bank of America

Apparel 14.4 Nike; VF; Jones Apparel

Electronics, electrical equipment

14.3 Emerson Electric; Whirlpool

Oil & gas equipment and services

14.3 Halliburton; Baker Hughes

Computer software 14.0 Microsoft; Oracle; CA

Aerospace and defense 13.9 Boeing; Untied Technologies; Lockheed Martin

Specialty retailers 13.8 Home Depot; Costco; Lowe’s

Chemicals 13.8 Dow Chemical; DuPont

Computers, office equipment 13.5 IBM; HP; Dell Computer

Healthcare 13.1 United Health Group; WellPoint; HCA; Medco

Industrial & Farm equipment 13.1 Caterpillar; Deere; Illinois Tool Works


Hotels, casinos, resorts 12.7 Marriott International; Harrah’s Entertainment

Publishing, printing 12.5 R.R. Donnelley & Sons; Gannett

Engineering, construction 12.4 Flour; Jacob’s Engineering

IT services 12.4 EDS; Computer Sciences; Science Applications International

General merchandisers 12.3 Wal-Mart; Target; Sears Holdings

Trucking, truck leasing 12.2 YRC Worldwide; Ryder System

Metals 11.8 Alcoa, U.S. Steel; Nucor

Wholesalers; food and grocery 11.3 Sysco; Supervalu; CHS

Energy production 11.2 Constellation Energy; ONEOK

Pipelines 11.2 Plains All-American Pipeline; Enterprise Products

Packaging & containers 10.9 Smurfit-Stone Container; Owens-Illinois

Automotive retailing and services

10.7 AutoNation; United Auto Group

Utilities: gas & electric 10.6 DU.K.e Energy; Dominion Resources

Food and drug stores 10.6 Kroger; Walgreen; Albertson’s

Furniture 10.4 Leggett & Platt; Steelcase

Real estate 9.9 Cendant; Host Marriott; Simon Property Group

Building materials, glass 9.9 Owens Corning; USG; Armstrong Holdings

Insurance: property and casualty

9.5 American Intel. Group; Berkshire Hathaway

Motor vehicles and parts 9.3 GM; Ford; Johnson Controls

Insurance: life & health 9.1 MetLife; New York Life

Forest & paper products 7.3 International Paper; Weyerhaeuser

Food production 6.5 Archer Daniels Midland; Tyson Foods

Semiconductors and electronic components

6.2 Intel; Texas Instruments; Sanmina-SCI

Network and communications equipment

5.9 Motorola; Cisco Systems; Lucent

Telecommunications 5.8 Verizon; AT&T; Sprint-Nextel

Entertainment 2.7 Time Warner; Walt Disney; News Corp.

Airlines (12.6) AMR; UAL; Delta Airlines

Note: Median ROE for each industry averaged across the seven years. Industries with five or fewer firms were

excluded. Also omitted were industries that were substantially redefined during 1999-2007.

Source: Data from Fortune 1000 by industry.


2. The leading companies in the online travel agency industry are Expedia, Travelocity (which

owns lastminute.com), Orbitz, Priceline, Cheaptickets and a host of others. The online

agents compete both with traditional travel agents (American Express, Thomas Cook,

Carlson) and direct online sales by airlines, cruise lines and car rental companies. Their

biggest business is selling airline tickets, where they employ the services of computerized

airline reservation systems such as Sabre, Amadeus, Worldspan and Galileo. Use Porter’s

five forces framework to predict the likely profitability of the online travel agency industry

over the next ten years?

3. In recent years Google has expanded from internet search across a broad range of internet

services, including email, photo management, satellite maps, digital book libraries, blogger

services and telephony. To what extent has Google’s strategy been built upon a common set

of resources and capabilities rather than specific customer needs? What are Google’s

principal resources and capabilities?

4. When Porsche decided to enter the SUV market with its luxury Cayenne model, it surprised

the auto industry by locating its new assembly plant in Leipzig in eastern Germany. Many

observers believed that Porsche should have located the plant either in central or eastern

Europe where labor costs were very low, or (like Mercedes and BMW) in the US where it

would be close to its major market. Using the criteria outlined in the following figure, can you

explain Porsche’s decision?


5. During 1984-88, Michael Eisner, the newly installed CEO of Walt Disney Company,

successfully exploited Disney’s existing resources to boost profitability (see the information

given below). During the last eight years of Eisner’s tenure (1998-2005), however,

profitability stagnated and share price declined. To what extent did Eisner focus too much on

exploiting existing resources and not enough on developing Disney’s capabilities to meet the

entertainment needs of a changing world?

Resource utilization: Revival at Walt Disney

In 1984, Michael Eisner became CEO of the Walt Disney Company. Between 1984 and 1988,

Disney’s sales revenue increased from $1.66 billion to 3.75 billion, net income from $98 million to

$570 million and the stock market’s valuation of the company from $1.8 billion to $10.3 billion.

The key to Disney’s turnaround was the mobilization of its considerable resource base.

Prominent among Disney’s underutilized resources were 28000 acres of land in Florida. With the

help of Arvida Corporation, a land development company acquired in 1984, Disney began hotel,

resort, and residential development of these land holdings. New attractions were added to the

Epcot Center, and a new theme park, the Disney-MGM Studio Tour, was built. Disney World

expanded beyond theme parks into resort vacations, the convention business, and residential

housing. To exploit its huge film library, Disney introduced videocassette sales of Disney movies

and licensed packages of movies to TV networks. The huge investments in the Disney theme

parks were more effectively exploited through heavier marketing effort and increased admission

charges. Encouraged by the success of Tokyo Disneyland, Disney embarked on further

international duplication of its US theme parks with Euro Disneyland just outside Paris, France. A

chain of Disney Stores was established to push sales of Disney merchandise. The most

ambitious feature of the turnaround was Disney’s regeneration as a movie studio. Eisner began a

massive expansion of its Touchstone label, which had been established in 1983 with the

objective of putting Disney’s film studios to fuller use and establishing the company in the

teenager and adult markets. Disney studios doubled the number of movies in production. In

1988, it became America’s leading studio in terms of box office receipts. Studio production was

further boosted by Disney’s increasing TV presence, both through the Disney Channel and

programs for network TV. Above all, the new management team was exploiting Disney’s most

powerful and enduring asset: the affection of millions of people of different nations and different

generations for the Disney name and the Disney characters.


Team No. 2

1. During 2007-09, the Nintendo Wii established leadership over Sony PS3 and Microsoft

Xbox360 in the market for video game consoles. Unlike Sony and Microsoft, Nintendo is

completely dependent upon video games industry for its revenues. How might Nintendo use

the competitor analysis framework outlined in the following figure to predict the likely

reactions of Sony and Microsoft to its market success?

2. The major forces shaping the business environment of the fixed-line telecom industry are

technology and government policy. The industry has been impacted by fiber-optics (greatly

increasing transmission capacity), new modes of telecommunication (wireless and internet

telephony), deregulation, and privatization. Using the five forces of competition framework,

show how each of these developments has influenced competition in the fixed-line telecom

industry.

3. In 2006, Disney completed its acquisition of the film animation company Pixar for $7.4 billion.

The high purchase price reflected Disney’s eagerness to gain Pixar’s animation capabilities,

its talents (animators, technologists and storytellers) and its culture of creativity. What risks

does Disney face in achieving the goal of this acquisition?


4. With reference to the following figure, identify a “sheltered industry” (i.e. one that has been

subject to little penetration either by imports or foreign direct investment). Explain why the

industry has escaped internationalization. Explore whether there are opportunities for

profitable internationalization within the industry and, if so, the strategy that would offer the

best chance of success.

5. The following figure implies that stable industries where firms have similar resources and

capabilities, offer less opportunity for competitive advantage than industries where change is

rapid and firms are heterogeneous. Think of an example of each of these two types of

industry. Is there any evidence that inter-firm profit differences are wider in the more

dynamic, heterogeneous industry than in the more stable, homogeneous industry?


Team No. 3

1. Given the following profile of Volkswagen’s resources and capabilities, what strategy

recommendations would you offer to Volkswagen?

Note: a) Both scales range from 1 to 10 (1= very low, 10= very high). b) VW’s resources and capabilities are

compared with those of GM, Ford, Toyota, DaimlerChrysler, Nissan, Honda, Fiat, and PSA, where 5 represents

parity. The ratings are based on subjective judgment

Comments:

Resources:

R1-Fianance: Credit rating is above average for the industry but free cash flow remains negative

R2-Technology: Despite technological strengths, VW is not a leader in automotive technology

R3-Plant & equipment: Has invested heavily in upgrading plants

R4-Location: Plants in key low-cost, growth markets (China, Mexico, Brazil) but German manufacturing base is very expensive

R-5-Distribution: Geographically extensive distribution with special strength in emerging markets. Historically weak position within US. R6-Brands: VW, Audi, Bentley and Bugatti are strong brands but, together with Skoda and Seat, VW’s brand portfolio lacks coherence and clear market position. Capabilities:

C-1: Product development: Traditionally weak. Despite a few big hits: Beetle (1938), Golf & Passat (1974), Vanagon (1979), VW still not an industry leader in new product development. C-2: Purchasing: Traditionally weak – strengthened by senior hires from Opel and elsewhere


C-3: Engineering: The core technical strength of VW

C-4: Manufacturing: A high cost producer, but struggles to attain above average quality

C-5: Financial management: Has traditionally lacked a strong financial orientation

C-6: R & D: Despite several technical strengths, VW is not a leader in automotive innovation C-7: Marketing & Sales: Despite traditional weakness in recognizing and meeting customer needs in different national markets, VW has increased its sensitivity to the market, improved brand management, and managed its advertising and promotion with increasing dexterity. C-8: Government relations: Important in emerging markets

Appraisal of Volkswagen’s Resources and Capabilities

2. In August 2006, Rupert Murdoch’s News International announced its intention of launching a

free evening newspaper, The London Paper, to challenge Associated Newspapers’ London

Evening Standard (daily sales 390000). Given that the Evening Standard was already

believed to be loss making, the new competition could be fatal for the paper. What steps

might Associated Newspapers take to deter News International from launching its new

paper, and it it goes ahead with the launch, what would Associated Newspapers’ best

response be?

3. Illy, the Italian-based supplier of quality coffee and coffee-making equipment, is launching an

international chain of gourmet coffee shops. What advice would you offer Illy for how it can

best build competitive advantage in the face of Starbucks’ market leadership?


4. With reference to the following table, what characteristics of national resources explain the

different patterns of competitive advantage for the U.S. and Japan?

Note: Revealed comparative advantage is measured as: (Exports less Imports)/ (Exports + Imports)

Source: OECD.

5. Trevor Baylis, a British inventor, submitted a patent application in November 1992 for a

wind-up radio for use in Africa in areas where there was no electricity supply and people

were too poor to afford batteries. He was excited by the prospects for radio broadcasts as a

means of disseminating health education in areas of Africa devastated by AIDS. After

appearances on British ad South African TV, Baylis attracted a number of entrepreneurs and

companies interested in manufacturing and marketing his clockwork radio, however, Baylis

was concerned by the fact that his patent provided only limited protection for his invention:

most of the main components—a clockwork generator and transistor radio—were long

established technologies. What advice would you offer Baylis as to how he can best protect

and exploit his invention?

Team No. 4

1. To what extent are the seven cost drivers given below relevant in analyzing the costs per

student at your business school? What recommendations would you make to your Dean for

improving the cost efficiency?


2. What do you think are key success factors in:

i. Pizza delivery industry?

ii. The investment banking industry?

3. Apple has been successful in dominating the market for both MP3 players with its iPod and

for music downloads with its iTunes service. Can Apple sustain its leadership in these

markets? Why and how or why not?

4. The following table shows that:

a) Patents have been more effective in protecting product and process innovations in

drugs and medical equipment than in food or electronic components

b) Patents are more effective in protecting product innovations than process

innovations.

Can you suggest why? Can you offer any other analytical insights from the following table?


Source: Cohen, Nelson & Walsh, NBER working paper W7552,

5. Read the following perspectives. Steve Rosenbush argues that integration between media

content and media distribution companies (and specifically between Disney and Comcast) is

strategically advantageous. John Kay suggests that there is little need for common

ownerships between distribution channels and the content that they carry. Explain the

arguments of each. Who do you agree with? As more content is being viewed via the

internet and on mobile devices, how does this affect the arguments?

Vertical Integration in the Media Sector:

Considerable vertical integration has occurred between content companies (film studios, music

publishing, and newspapers) and distribution companies (TV broadcasting, cable, satellite TV,

telecom providers). News Corp. has expanded from newspapers into movie production (Twentieth

Century Fox), broadcast TV (Fox), satellite TV and other sectors of the media business; Disney

acquired TV broadcaster ABC; Viacom, formerly a cable company, acquired Paramount and

DreamWorks; GE’s NBC Universal combines studio production with cable and broadcast TV

distribution; and AOL merged with Time Warner, a leading magazine, film, and music company. In

2004 Comcast, America’s biggest cable operator, made a $54 billion hostile bid for Walt Disney

Company. Does vertical integration between media content and media distribution create or destroy

value? Here are two contrasting views:


Steve Rosenbush, (Business Week, February 11, 2004): The economics of the TV-distribution may

have been under siege for some time. That’s why many of the business’ smartest operators like

Liberty media’s John Malone and Viacom’s Sumner Redstone, started shifting their investments into

media years ago. Under Redstone, Viacom has been transformed from a cable operator into a media

hothouse that includes everything from MTV to CBS. Buying Disney shouldn’t be a surprise. It’s the

logical next step”. Contrast CEO Brian Roberts said at his February 11 press conference announcing

his bid for the Mouse House. It isn’t enough to be just a media company, either. Most content

providers benefit from having a certain amount of distribution, which helps lower their costs. That’s

why, in the future, media and communications will be dominated by hybrids such as News Corp.

which recently acquired satellite-TV operator DirecTV. Comcast’s Roberts has embraced this future.

The question now is whether Disney CEO Michael Eisner – who spurned an offer for a friendly deal –

can accept the same future. For decades Disney and other programmers have held the balance of

power in distribution deals. That’s changing. The cable-TV business isn’t just a collection of small

family companies running regional outfits anymore. Comcast, which began life in Tupelo, Mississippi,

in 1963, now has national reach. It has greater market cap than Disney. And it’s competing with

satellite-distribution companies like DirecTV also national in scope. Now that DirecTV is under Rupert

Murdoch’s control, it would be folly for Disney to pretend that it can still compete without a distribution

partner of comparable stature. Comcast fits the bill.

John Kay (Financial Times, March 3, 2004): Media content needs delivery, and vice versa. And the

same channels can often be used to disseminate text, images and music. This discovery was made

at least 1000 years ago by people who developed religious services, still among the most moving

and spectacular multimedia displays. But this old idea is frequently rediscovered by visionary chief

executives, excitable consultants, and greedy investment bankers: the people who proclaimed the

AOL-Time Warner deal a marriage made in heaven. And it was revealed with Damascene force to

Jean-Marie Messier, a humble French water carrier. But activists can converge without requiring that

the companies that undertake them converge. The erstwhile maître du monde might have drawn a

useful lesson from his experience at Compagnie Gènèrale des Eaux before his apotheosis as chief

executive of Vivendi Universal: sewer and the stuff that goes down them do not need common

ownership.

Team No. 5

1. Sony, which once dominated the market for portable music players with its Walkman

products, has been the big loser to Apple in the market for MP3 music players. Using the


following figure, suggest opportunities for how Sony might differentiate its MP3 Walkman to

increase its customer appeal?

2. Microsoft’s main capabilities relate to the development and marketing of complex computer

software and its greatest resource is its huge installed base of its Windows operating

system. Does Microsoft’s entry into video game consoles indicate that its strategy is

becoming divorced from its principal resources and capabilities?

3. Target (the US discount retailer), H&M (the Swedish fashion clothing chain) and Primark (the

UK discount clothing chain) have pioneered “cheap chic” – clothing discount store prices

with fashion appeal. What are the principal challenges of designing and implementing a

“cheap chic” strategy for a company entering another market, e.g. restaurants, sports shoes,

cosmetics, or office furniture.

4. According to Michael Porter’s Competitive Advantage of Nations, some of the industries

where British companies have an international advantage are: advertising, auctioneering of

antiques and artwork, distilled alcoholic beverages, hand tools and chemical preparations for

gardening and horticulture. Some of the industries where US companies have an

international competitive advantage are: photo film, aircraft and helicopters, computer

hardware and software, oilfield services, management consulting, cinema films and TV

programs, healthcare products and services, and financial services. For either the UK or the


US, use Porter’s national diamond framework given below to explain the observed pattern of

international competitive advantage.

1. FACTOR CONDITIONS—“Home grown” resources/capabilities more important than natural endowments.

2. RELATED AND SUPPORTING INDUSTRIES—Key role of “industry clusters”

3. DEMAND CONDITIONS—Discerning domestic customers drive quality & innovation

4. STRATEGY, STRUCTURE, RIVALRY. E.g. domestic rivalry drives upgrading.

5. Has McDonald’s got the balance right between global standardization and national

differentiation (see the following write-up)? Should it offer its franchisees in overseas

countries greater initiative in introducing products that meet national preferences? Should it

also allow greater flexibility for its overseas franchisees to adapt store layout, operating

practices, and marketing? What aspects of the McDonald’s system should its top

management insist on keeping globally standardized? How the different countries can

address the concerns and interests of their stakeholders with regard to the impact of

McDonald’s position on their economies?

McDonald’s

For anti-globalization activists, McDonald’s is a demon of globalization: it crushes national cuisines

and small, traditional family businesses with the juggernaut of US fast-food corporate imperialism. In

reality, its global strategy is a careful blend of global standardization and local adaptation.

McDonald’s menus include a number of globally standardized items – the Big Mac and potato fries

are international features – however, in most countries McDonald’s menus feature an increasing

number of locally developed items. These include:

Australia: a range of wraps including Seared Chicken, Tandoori Chicken and Crispy Sweet Chili Chicken;

France: Croque McDo (a toasted ham and cheese sandwich);

Hong Kong; Grilled Pork Twisty Pasta and Fresh Corn Soup;

India: Shahi Paneer McCurry Pan, McAloo Tikki, Veg Pizza McPuff;


Saudi Arabia: McArabia kofta, McArabia Chicken;

Switzerland: Shrimp Cocktal, Chickenburger Curry;

U.K.: A range of deli sandwiches including “Spicy Veggie Deli” (chickpea patty with coriander and cmin) and “Sweet Chili Chicken Deli”;

USA: Premium Grilled Chicken Ranch BLT Sandwich.

There are differences too in restaurant décor, service offerings 9internet access in the UK; home

delivery in India), and market positioning (tends to have more up-market positioning outside the US).

In Israel many McDonald’s are kosher – they do not offer dairy products and are closed on

Saturdays. In India neither beef not pork is served. A key reason that almost all of McDonald’s non-

US outlets are franchised is to facilitate adaptation to national environments and access to local

knowhow. Yet the principle features of the McDonald’s business system are identical throughout.

McDonald’s values and business principles are seen as universal and invariant. Its emphasis on

families and children is intended to identify McDonald’s with fun and family life wherever it does

business. Community involvement and the Ronald McDonald children’s charity are also worldwide.

Corporate trademarks and brands are mostly globally uniform – including the golden arches logo and

“I’m lovin’ it” tag line. The business sytem itself – the franchising, the training of managers and

franchisees through Hamburger University, restaurant operations, and supplier relations – is also

highly standardized. Traditionally McDonald’s international strategy was about adapting its US model

to local conditions. Increasingly McDonald’s is using local differentiation as a basis for worldwide

adaptation and innovation through transferring new menu items and business concepts from one

country to another. For example, the McCafe gourmet coffeehouses within McDonald’s restaurants

were first developed in Australia. By 2003, McCafes had become established in 30 countries,

including the US. In responding to the growing tide of concern over nutrition and obesity in the

developed world, McDonald’s has drawn upon country initiatives with regard to sandwiches, salads,

and information labeling as a basis for global learning. Whether or not McDonald’s has the balance

right from global standardization and local adaptation is open to debate. Simon Anholt, a British

marketing expert, argues: “By putting local food on the menu, all you are doing is removing the logic

of the brand, because this is an American brand. If McDonald’s serves what you think is poor

imitation of your local cuisine, it’s going to be an insult”. But according to McDonald’s CEO Jim

Skinner: “We don’t run our business from Oak Brook. We are a local business with a local face in

each country we operate in”. His chief marketing manager, Mary Dillon adds, “McDonald’s is much

more about local relevance than a global archetype. Globally we think of ourselves as a custodian of

the brand, but it’s all about local relevance.”


Team No. 6

1. Advise a chain of movie theaters on a differentiation strategy to restore its flagging

profitability. Use the following value chain framework of a Can manufacturer to identify

potential linkages between the company’s value chain and that of its customers in order to

identify differentiation opportunities.

Stage-1: Construct a value chain for firm and customer

Stage-2: Identify the drivers of uniqueness. For each of the activities it is possible to suggest

several possible differentiation variables.

Stage-3: Select key variables considering the company’s internal strengths

Stage-4: Identify linkages between the company’s potential for differentiation and the potential

for reducing cost or enhancing differentiation

2. Wal-Mart (like Carrefour, Ahold and Metro) competes in several countries of the world, yet

most shoppers choose between retailers within a radius of a few miles. For the purpose of

analyzing profitability and competitive strategy, should Wal-Mart consider the discount

retailing to be global, national, or local?

3. A number of industries have experienced rapidly increasing global concentration in recent

years: commercial aircraft (led by Boeing and Airbus), steel (led by Mittal steel), beer (led by

SAB-Miller, Anheuser-Busch-Inbev, and Heineken), commercial banking (led by Citigroup,


HSBC, Bank of America, Royal Bank of Scotland, and Banco Santander), defense

equipment (led by Lockheed Martin, Northrop Grumman and EADS) and delivery services

(led by UPS, FedEx, and Deutsche Post/DHL). For each industry, are economies of scale

the major reason for increasing concentration? If so, identify the sources of economies of

scale. If not, how can increase in global concentration be explained?

4. From the evidence presented in the following table, what conclusions can you draw

regarding the factors that determine whether leaders are followers win out in the markets for

new products?

5. IKEA furnishings, Honda cars, Amazon, and Starbucks have achieved differentiation while

maintaining a broad market appeal. How do companies achieve differentiation of their

products without limiting their appeal to certain market segments? If The Gap Inc. wishes to

develop differentiation advantage while still appealing to customers across a broad

demographic and socio-economic range, what advice would you offer it?


6. Consider the changes that have occurred in a comparatively new industry (e.g. wireless

communications, video game consoles, medical diagnostic imaging, PDAs, on-line auctions,

bottled water, courier delivery services). To what extent has the evolution of the industry

followed the pattern predicted by the industry life cycle model? At what stage of development

is the industry today? How is the industry likely to evolve in the future?