Case Study - Global Business Enviornment

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Case Study: Global Business Environment

GROUP 1

I Want My Greek !"

It is now almost two decades since the member states of European Union (EU) started toimplement a treaty calling for the establishment of a single market for goods and services acrossthe union, and yet progress toward this goal is still not complete. A case in point the !"broadcasts of #remier $eague soccer. !he English #remier $eague, which is one of the mostlucrative broadcasting sports franchises in Europe, if not the world, has for years segmentedEurope into different national markets, charging different prices for broadcasting rightsdepending on local demand. %ot surprisingly, the rights are most e&pensive in the United'ingdom, where the league has contracted with ritish ky roadcasting *roup and E#% to

screen games.

'aren +urphy, the owner of the ed, -hite lue pub in #ortsmouth, England, didn/t want topay the 0111 pound annual subscription fee that ky demanded for access to the #remier $eaguefeed. Instead, she purchased a !" signal decoder card and used it to unscramble the feed from a*reek !" broadcaster, %ova, which had purchased the rights to broadcast #remier $eague soccerin *reece. !his cost her 2ust 311 pounds a year. In 4115, it also brought a lawsuit from the#remier $eague. !he initial 2udgment in a ritish court upheld the right of the #remier $eagueto segment the market and charge a higher price to U' subscribers. +urphy was fined 3111pounds. he appealed the ruling, claiming the practice violated the ingle +arket Act, which theUnited 'ingdom had signed in 6774.

!he case eventually landed in the European 8ourt of 9ustice, the EU/s highest court. !he#remier $eague argued before the court that the EU needs individual national !" markets tosatisfy the :cultural preferences; of viewers. !he court did not agree. In a bombshell for the#remier $eague, on


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rights to ky and E#% is worth some 6.034 billion pounds to the league between 4161 and416=.

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mounting a defense against this kind of lawsuit would not have made economic sense. !hedefendants would have simply paid the plaintiff to go away to avoid paying U.. legal fees, eventhough the case had no merit. ut with a team of e&cellent Indian attorneys trained in U.. lawdoing a ma2or chunk of the legal work, it was less e&pensive to fight and win the suit than it wasto settle out of court.

$egal outsourcing to places such as India and the #hilippines is growing. Although the amountsinvolved are still small C estimates suggest that of the D631 billion Americans spend on legalservices each year only about D6 billion is outsourced > the growth rate is high at 41 to =1 percentannually. !he driving force has been spiralling legal fees in the United tates. etween 6773and 4117, hourly rates at big American law firms shot up more than B5 percent, according toindustry sources.

4117 recession prompted clients to rebel againstthis practice. Increasingly, clients are pushing their law firms to drive down legal costs throughoutsourcing. -hile hourly rate for U.. lawyers doing grunt work can run from D611 to as highas D511, lawyers in India will do the work for between D41 and DB1 an hour, resulting insignificant cost savings.

Fne ma2or beneficiary of this trend has been an outsourcing company known as #angea=. to 64>hour time difference between Indiaand the United tates means that work can be done overnight in India, increasing responsivenessto clients.

#angea= serves two kinds of clients, corporations and U.. law firms seeking to outsourceroutine legal work to low>cost locations. ome 05 percent of its business comes from !ortune6111 companies, while the rest comes from law firms. #angea=/s value proposition is simple Ithelps companies and law firms improve their efficiency, and minimie their business and legalrisks, by having routine, labour>intensive legal work that reGuires a low degree of 2udgment donein India. +ost industry e&perts believe that in the short to medium term, companies such as#angea= will see their market opportunity e&pand from about D6 billion today to D=billion to D5billion by decade/s end. In anticipation of this rapid growth, !homson euters, one of theworld/s largest media and information services companies, bought #angea= in %ovember 4161.

Case #is$ussion %uestions

6. -hat are the benefits to a law firm of outsourcing of legal services to a foreign country? -hat are thepotential costs and risks?

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4. -hat kind of legal services are most amenable to outsourcing?

=. -hich groups gain from the outsourcing of legal services? -hich groups lose?

. Fn balance, do you think that this kind of outsourcing is a good thing or a bad thing? -hat are the risks

here?

5. -hy were the services in this case outsourced to India, as opposed to another country such as 8hina?-hat does this case tell you about the kinds of factors that are important when a firm is consideringwhether to outsource a value creation activity, and where to outsource it to?

GROUP *

+e Global ,inan$ial Crisis and Prote$tionism

!wo facts have characteried international trade between 673B and 4110. tariff barriers that are designed to get around -!F rules.;

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Indonesia, for e&ample, specified that certain kinds of goods, including clothes, shoes, and toys,can be imported only through five ports. ince these ports have limited capacity, this constrainsthe ability of foreign companies to sell into the Indonesian market. Argentina has imposeddiscretionary licensing reGuirements on a range of goods including car parts, te&tiles, andtelevisions. If you can/t get a license, you can/t sell into Argentina. 8hina has stopped a wide

range of imports of food and drink products from Europe, citing safety rules and environmentalconcerns, while India has banned imports of toys from 8hina for safety reasons.

@eveloped nations in general did not take similar actions, but they sharply increased subsidies totroubled domestic producers, which gave them an advantage against unsubsidied internationalcompetitors, and therefore may have distorted trade. !he key e&ample of this in 4113 and 4117was the automobile industry. !o protect national producers, hold on to 2obs, and stave offbankruptcies, rich countries including the United tates, ritain, 8anada, 4113 and mid>4117. !he problem with such subsidies is that they could cause production to switch from moreefficient plants to less efficient plants that have an advantage due to state support. Although the

-!F has rules against trade>distorting subsidies, its enforcement mechanisms are weaker than inthe case of tariffs, and so far countries that have been increasing subsidies have not beenchallenged.

!he volume of international trade has since rebounded strongly, growing by around 6.5 per centon the back of a =.6 percent increase in the sie of the global economy in 4161. As thishappened, protectionist pressures abated somewhat. !rade rebounded more strongly indeveloping nations than in the developed world. 8hina, in particular, saw a massive 43.5 percent leap in the volume of its e&ports, which created additional trade tensions.


6. -hy do you think calls for protectionism are greater during sharp economic contractions thanduring boom periods?

4. @espite the sharp economic contraction during 4113C4117, the increase in protectionistmeasures was fairly modest. -hy do you think this was the case?

=. @uring 4113C4117, many developed nations gave subsidies to their automobile producers.ow might this have distorted international trade? -as this a reasonable thing to do given thecircumstances?

. -hat might occur if renewed economic slowdown triggered a wave of protectionist measuresaround the world? -ould protectionism protect 2obs, or would it make things worse?

5. !he volume of world trade rebounded sharply in 4161 on the back of a fairly modest growthrate in the world economy. -hat does this tell you about the nature of internationalproduction in today/s global economy? -hat does this tell you about the vulnerability of theworld economy to any future trade wars?

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GROUP -

)(,( and Me.i$an ru$kin/

-hen %orth American be unloaded and reloaded onto American trucks, a process that took time and cost money. It wasalso argued that greater competition from +e&ican trucking firms would lower the price of roadtransportation within %Athirds of cross>border trade within %A

!his provision was vigorously opposed by the !eamsters Union in the United tates, whichrepresents truck drivers. !he union argued that +e&ican truck drivers had poor safety recordsand that +e&ican trucks did not adhere to the strict safety and environmental standards of theUnited tates. !o Guote 9ames offa, the president of the !eamsters

+e&ican trucks are older, dirtier, and more dangerous than American trucks. American truck

drivers are taken off the road if they commit a serious traffic violation in their personalvehicle. !hat/s not so in +e&ico. $imits on the hours a driver can spend behind the wheel areignored in +e&ico.

Under pressure from the !eamsters, the United tates dragged its feet on implementation of thetrucking agreement. Ultimately, the !eamsters sued to stop implementation of the agreement.An American court re2ected its arguments and stated the country must honour the treaty. o did a%A

setting 44 new safety standards that +e&ican trucks would have to meet before entering theUnited tates.

In an attempt to break the stalemate, in 4110 the U government set up a pilot programme underwhich trucks from some 611 +e&ican transportation companies could enter the United tates,provided they passed American safety inspections. !he +e&ican trucks were tracked, and after63 months, the programme showed the +e&ican carriers had a slightly better safety record than

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their U.. counterparts. !he !eamsters immediately lobbied 8ongress to kill the pilotprogramme. In +arch 4117, an amendment attached to a large spending bill did 2ust that.

!his time the +e&ican government did not let the United tates off the hook. As allowed tounder the terms of the %A

billion of goods shipped from the United tates to +e&ico. 8alifornia, an important e&porter ofagricultural products to +e&ico, was hit hard. !able grapes now faced a 5 percent tariff, whilewine, almonds, and 2uices would pay a 41 percent tariff. #ears, which primarily come from-ashington tate, faced a 41 percent tariff ( out of 61 pears that the United tates e&ports go to+e&ico). Fther products hit with the 41 percent tariff include e&ports of personal hygieneproducts and 2ewelry from %ew Hork, tableware from Illinois, and oil seeds from %orth @akota.!he U.. 8hamber of 8ommerce has estimated that the situation cost some 45,B11 U.. 2obs.!he U.. government said it would try to come up with a new programme that both addressedthe :legitimate concerns; of 8ongress and honoured its commitment to the %A

In 9uly 4166, the Fbama administration signed an agreement with +e&ico designed to end the

long>running dispute. !he agreement called for +e&ican truck emissions to meet U.. clean airstandards and for +e&ican drivers to submit to U.. security checks, to meet U.. highway safetystandards, and to demonstrate competency in English and an understanding of U.. ighwaysigns. In addition, +e&ican truckers are reGuired to purchase U.. insurance. !he !eamstersUnion continued to oppose the deal and tried to stop its implementation, but it was unable to doso this time. In Fctober 4166, the first +e&ican truck bound for the U.. interior crossed theinternational bridge at $aredo, !e&as, bound for @allas and carrying electronic eGuipment.


6. -hat are the potential economic benefits of the trucking provisions in the %A

4. -hat do you think motivated the !eamsters to ob2ect to the trucking provisions in %A

=. @oes it make economic sense for the United tates to bear the costs of punitive tariffs as allowed forunder %A

. -hy do you think the Fbama administration brokered a deal with +e&ico to allow +e&ican truckdrivers to access the United tates? @o you think this is a reasonable deal?

GROUP 0

'OGIEC

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est known as one of the world/s largest producers of computer mice, $ogitech is in many waysthe epitome of the modern global corporation. cost video cameras that cost less than D611. $ogitechmade its name as a technological innovator in the highly competitive business of personal

computer peripherals. It was the first company to introduce a mouse that used infrared tracking,rather than a tracking ball, and the first to introduce wireless mice and keyboards. $ogitech isdifferentiated from competitors by its continuing innovation, high brand recognition, and strongretail presence. $ess obvious to consumers, but eGually important, has been the way thecompany has configured its global value chain to lower production costs while maintaining thevalue of those assets that lead to differentiation.

$ogitech still undertakes basic @ work (primarily software programming) in witerland,where it has several hundred employees. !he company is still legally wiss, but most of thecorporate functions are run out of offices in technology enterprises, where it has more than 511 employees. ome @ work (again,

primarily software programming) is also carried out in developed supply base for parts, Gualified people, and a rapidly e&panding local computerindustry. As an inducement to fledgling innovators, !aiwan provided space in its science>basedindustrial park in sinchu for the modest fee of D411,111. iing this up as a deal that was toogood to miss, $ogitech signed the lease. hortly afterward, $ogitech won the FE+ contract withApple. !he !aiwanese factory was soon out>producing $ogitech/s U. . facility. After the Applecontract, $ogitech/s other FE+ business started being served from !aiwanJ the plant/s totalcapacity increased to 61 million mice per year.

y the late 6771s, $ogitech needed more production capacity. !his time it turned to 8hina. Awide variety of the company/s retail products are now made there. A wireless infrared mousecalled -anda, one of $ogitech/s biggest sellers, is assembled in uhou, 8hina, in a $ogitech>owned factory. !he factory employs ,111 people, mostly young women such as -ang Han, an63>year old employee from the impoverished rural province of Anhui. he is paid D05 a monthto sit all day at a conveyer belt plugging three tiny bits of metal into circuit boards. he does thisabout 4,111 times each day. !he mouse -ang Han helps assemble sells to American consumersfor about D1. Ff this, $ogitech takes about D3, which is used to fund @, marketing, andcorporate overhead. -hat remains after that is the profit attributable to $ogitech/s shareholders.

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@istributors and retailers around the world take a further D65. Another D6 goes to the suppliersthat make -anda/s parts. Guarters of 8hina/s high>tech>e&ports. 8hina/s top 61 e&porters include American companies with 8hinese operations, such as+otorola and eagate !echnologies, a maker of disk drives for computers. Intel now producessome 51 million chips a year in 8hina, the ma2ority of which end up in computers and othergoods that are e&ported to other parts of Asia or back to the United tates. Het Intel/s plant inhanghai doesn/t really make chipsJ it tests and assembles chips from silicon wafers made inIntel plants abroad, mostly in the United tates. 8hina adds less than 5 percent of the value. !heU.. operations of Intel generate the bulk of the value and profits.


6. In a world without trade, what would happen to the costs that American consumers wouldhave to pay for $ogitech/s products?

4. E&plain how trade lowers the costs of making computer peripherals such as mice andkeyboards?

=. Use the theory of comparative advantage to e&plain the way in which $ogitech has configured itsglobal operations. -hy does the company manufacture in 8hina and !aiwan, undertake basic@ in 8alifornia and witerland, design products in Ireland, and coordinate marketing and

operations from 8alifornia?

. -ho creates more value for $ogitech, the B51 people it employs in


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GROUP 2

Walmart in 3a4an

9apan has been a tough market for foreign firms to enter. !he level of foreign direct investment(


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-almart/s goal was to transfer best practices from its U.. stores and use them to improve theperformance of eiyu. !his meant implementing -almart/s cutting>edge information systems,adopting tight inventory control, leveraging its global supply chain to bring low>cost goods into9apan, introducing everyday low prices, retraining employees to improve customer service,e&tending opening hours, renovating stores, and investing in new ones.

It proved to be more difficult than -almart had hoped. -hen -almart acGuired a ma2ority stakein eiyu, it promptly laid off 6,511 employees at the retailer/s headGuarters. -hile this reducedcosts, it also created resistance from former and remaining employees, who complained vocallyto the press about how -almart was trying to impose American management practices on a9apanese corporation. !his was a public relations setback for -almart. -almart also stumbledwhen it began to stock low>priced (and low>perceived>Guality) 8hinese goods in its 9apanesestores. 9apanese consumers did not respond favourably, and -almart found that it had to alter itsmerchandising approach, offering more high>value items to match 9apanese shopping habits,which were proving to be difficult to change. -almart/s entry also prompted local rivals tochange their strategies. !hey began to make acGuisitions and started to cut their prices to match

-almart/s discounting strategy. Also, many 9apanese suppliers were reluctant to work closelywith -almart due to their belief that -almart would force them to cut prices to the bone.

@espite such setbacks, -almart has slowly started to make progress in 9apan. !he retailer hasbeen ad2usting to the 9apanese market. Hen ento,/ a single>serve, freshly prepared meal that sells for about D and is tailored to Ksomeone on a pension withlimited funds./ // -almart has also drawn on its global supply chain to introduce products into9apan that have caught on with local consumers, such as eese/s #ieces peanut butter candiesfrom ershey 8o. !he company has also found that by bypassing 9apan/s traditional multi>tiereddistribution system, and importing food directly from other countries, it can undercut localcompetitors. year hiatus,-almart announced that it would open 44 new stores in 9apan over the ne&t two years.


6. -hy, historically, has the level of


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Case Study - Global Business Enviornment