Embed Size (px)
Citation preview
International Business Management - Learning Diary
Table of Contents
Case 1: Asian Paints ...................................................................................................................................... 3
Case 2: Midea ............................................................................................................................................... 6
Case 3: Citibank ............................................................................................................................................. 8
Case 4 : Blue Ridge Buy-out in 1996 .......................................................................................................... 12
Case 5 : Bain & Company ........................................................................................................................... 14
Case 6: Silvio Napoli at Schindler India ...................................................................................................... 17
Case 7: Jollibee Foods Corporation (A) ...................................................................................................... 19
Case 8: Infosys Consulting in 2006 ............................................................................................................. 23
Case 9: House of Tata: Acquiring Global footprint ..................................................................................... 27
Case 10: ICICI’s Global Expansion ............................................................................................................. 30
CONSOLIDATED LEARNINGS ............................................................................................................... 34
Case 1: Asian Paints
Before Class Notes
Q1. What accounts for APL’s success in India?
1. Strong Information Technology – demand forecasting, reduce inventory, low working capital cost, improved service standards, reduced loss of sales – derived value of IT across value chain, first-mover into IT created competitive advantage for them.
2. Insights into consumer’s needs because of strong dealer’s/sales relations3. Focus on Innovation and products across all price range 4. Scale advantage – marketing, distributing, manufacturing, sourcing, better working capital mgt.
that reduced threat of competitors by high entry barrier, low pricing5. Strong RnD focus that lowering cost of operations6. Strong distribution network – exclusive dealers – high return on investment7. Talent management – very critical for success for Asian paints
Q2. Why did APL internationalize?
1. Vision of APL to be among top 5 paint manufacturer of the world2. Growth as a driving factor as it was already market leader in India3. Cater to increased global demand for paint – maximum growth potential in emerging economies 4. Cash rich company and hence decided for inorganic growth and developing markets were the right
choice at that time
Q.3 Why IB division returns are low?
1. High employee cost 18.6 mill USD which is almost 50% of total employee cost2. High debt – high interest – low profit
Q4. What are the key issues facing Jalaj Dani?
1. how can he increase ROCE2. How would BI support APL vision3. Where to grow and where divest4. how to leverage best practices of APL India5. how to develop a global brand6. micro management issues
Class Discussion
Objective is to find the differentiator.
Critical Success Factor of Paints
1. Differentiators 2.Price Distribution Network, 3.Product innovation – segment customer as finer as possible , 4.After sales service, 5.Efficient Technologies, 6. Brand Equity, 7.Economies of Scale,8.Cost control
Need to innovate to maintain critical advantages
India advantages
1. RnD efficiency and talent can be leveraged2. Brand equity can be leveraged at partner level3. Knowledge how to build a brand can be leveraged
Approach towards internationalization
1. Go for similar markets2. Internationalize to learn3. Continue with Australia operations till breakeven
Entry strategies
1. Market identification on the basis of a. Size of the economyb. Paint market – size, per capita competition, nature of the competitionc. Penetrated into emerging market – growth market, leadership market,
2. Choice of Producta. Decorative paints that will act as differentiators because vision is to become top 5 in
decorative paints3. How to enter – entry mode?
a. JV – Preferred to make use of partner resourcesb. Greenfield – High cost of setup and longer time to establish economies of scalec. Export - demand and supply side issues
d. AcquisitionBias is towards JV to minimize the internationalization cost
Post entry strategies
1. Focus on various markets and how to be competitive in various markets 2. Reuse market knowledge and leverage local strategy to global
StructureGlobal, Regional and Local – empowered decision
Learning from the case1. Most critical question to be answered is why one firm should internationalize?2. Find CSFs and look for the factor that differentiates one firm from another. 3. Keep innovating to maintain competitive advantage4. All thee domestic strengths can be transferred to international market.5. There are various modes of entry to international market, it’s important to find out correct mode of
entry (Greenfield, JV, Export etc)
6. Post entry, develop competitive advantage in various markets separately and look for similarities of the markets so that advantage can be transferred from one market to another
7. Organization structure is dependent on type of market and mode of entry and should always be designed very carefully.
Case 2: Midea
Before class Notes
Problems :1. Should Midea internationalise?
a. Unfamiliar environment with not much market experienceb. Midea’s international presence is limited to tie up with SMC.c. Lack of cash reserves
2. Maintain Chinese marketa. Single largest market of china (shanghai) is crowded with international players
• How to defend existing markets?• Should the focus be on coastal areas?• How to tackle new entrants with larger cash backings
Current scenario1. Good brand image2. Strong RnD Facilities3. Government support in China4. Accelerated growth from 1 billion in 20 years to 15 billion in 20105. Not present in some major markets of China (Shanghai)6. Strong distribution network7. Existing association with SMC in international markets – Strong export base8. Cost advantage – can produce cheaper products being in china. 9. Has existing knowledge of local Chinese market10. Increased competition from Chunlan 11. Strong incumbents in international markets
Class Discussion
Why China?
1. Growing market2. Foreign player entry, so Midea should defend its current position3. Tie up with international player not in China (Toshiba and LG) 4. Strong Distribution + Service
Why Internationalize?1. Increased threat from new entrants - Vulnerable to acquisition2. Leverage their strong Distribution experience3. Focus on developing market4. Follow the competitor
• Threshold value – different for various segments• Differentiated value – providing additional value• Find out what competitors are doing and define strategy accordingly
• Consumer preferences change with the time, so strategy has to factor in the changing consumer behavior
• Technical knowhow can only be obtained when entering a developed market and then the strategy should be to use those to ones advantage in the developing markets
Learning from the case
1. Need to internationalize to defend domestic position2. Keep an eye open for competitor activities 3. Identify gaps in market and leverage experience to move into those gaps4. Strategy is dynamic and needs to change with time5. Technical knowhow only obtained from investment in Rnd or expansion in developed markets
which come with their own risks
Case 3: Citibank
Before class Notes
Decision Dilemma
• Whether to go for credit card expansion in Asian economies or not?• Should credit card business be handled separately?• Which all countries to target?• What should be City’s image? Low cost Mass card – high cost premier card• What marketing channel to use? Is the channel financially viable?
Some critical factors those are required for City bank to be successful:What factors to look for while launching the credit card in selected Asian economies?
Industry CSF
1. Good Servicea. Faster transaction settlement timeb. High retain merchant acceptability (Convenience)c. Easy payment
2. Operations Infrastructurea. Call centerb. Back officec. Telecom infrastructure
3. Brand valuea. Prestigeb. Social status
4. International acceptability5. Price
a. Joining Fee/yearly annual fee to consumerb. Fee to retailers
6. Terms of paymentsa. Interest rateb. Repayment termsc. Credit limit
7. Low cost of acquisition
Market entry costCustomer to acquire: 250000
Direct mail 1.5 300000 450000Take-ones 0.25 2000000 500000Direct Sales 0.15 3000000 450000Bind-ins 11 18000 198000
1598000For 250,000 customer
15980000 1.6 Millionper customer acquisition cost 63.96
16000000 TV ad expense
35000000Fixed overhead
62500000 per card cost129480000 Total Cost
Per customer cost 517.92NO NEW CUST ACQ.Year 2 Cost
35000000Fixed overhead
4750000 per card cost39750000
Per customer cost 159
250000 New Customer AcquisitionYear 2 CostAdv Cost 63.96Extra cost 90Card cost 19total 172.96Total 172.96Revenue 162.65
Which markets to enter?
City Bank Analysis.xls
Class Discussion
Break Even calculations after the class:
CitiBank.xls
• There should be a certain set of criterion which can be used to decide on which country to enter.
• Aim to go from $69 mn today to $100 mn in 2 yrs
• Current banking customer base ~ 850, 000 @ $81 per customer
• At this rate, to generate the additional $31 million we will need another 400,000 customers. So this can be one of the guiding factors for selecting which geographies to enter
• Winning the support of country managers is very crucial to the success of the entry strategy and it is they who will drive the growth.
The decision to enter will be based on a number of factors including the marketing mix / channel mix, potential customers available, their current credit-card usage patterns, etc.
Break-even will only cover minimum volume needed. But go- or no-go decision is based on Internal Rate of Return as well.
• Target segments: >$12,000 , # of cards, Usage patterns,
• Positioning strategy: High-end v/s mass market
• Pricing / proposition: Joining fees, Annual fees
• Positioning will have to be “Premium”
COMPONENTS OF IMPLEMENTATION STRATEGY:
• Structural arrangement , Roll-out plan, Learning mechanisms, Incentive structure, Cross-sell opportunity, Responsibility
What structural arrangement should be used to get a buy-in from country managers?
1. Detailed information sharing as to future plans2. Tweak the incentive structure – relate it to credit card business and growth3. Show the opportunities of cross selling4. Don’t take credit card loss as part of bank benefits
Learning from the case
1. Market size should be such that number of customers available should allow quick break even2. Any strategic decision should be backed by financial calculation like Break even analysis3. Expansion into any market also opens up the opportunities of cross and up selling other products
of the organization4. There are several softer issues like culture, business environment, political stability, regulations
etc which are decisive factors in the market entry strategy
5. At times a strategic decision to enter the market can be just learning and implementing that learning into other markets.
Case 4 : Blue Ridge Buy-out in 1996
Before Class Analysis
1. Vast international presence – Australia, South east Asia, Europe, middle east2. 2 billion paid for blue ridge by delta is not huge. Blue Ridge sales in 1996 6.8 billion , so buying
out was a wise decision. 3. No of stores – One of the largest food chain 4. provided platform to cross sell delta’s products 50 % Jvs money, rest of Blue Ridge – about 3.4 billion in sales, with at-least 10 % margin in food business it would take about 5-6 years to recover the money
Blue Ridge and Terralumen.
Blue Ridge
1. Large scale restaurant. Expertise2. Management expertise in admin and operations, policies, procedures3. Brand Presence4. Superior Technologies
Terralumen
1. Local player and in-depth market knowledge2. Established Relationship with Real estate and labor market3. Language Advantage4. Strong supply chain for food business (agriculture business)
Costas: • In favor of JV• No Big bang approach• Consolidate Spain learning’s• New JV may not be feasible• Large lead time for Greenfield ventures• Problems related to Infrastructure should be taken into consideration
Andres Balaguer• We have greater local knowledge• We have superior management skills• Difficult to get efficient managers in food business
Sodergram• Low growth rate• Royalty not being paid• Wants to renegotiate contract for greater flexibility
• Want more control and authority
JV problem areas
1. Delta’s philosophy was different from blue ridge regarding JVsl. They preferred own subsidiaries2. Differences in the growth targets of Terralumen and Delta.
a. Cultural differenceb. Market perceptionc. Trust in the report by American consultants
3. Overall trust issue was a problem area as with the new 4. Unethical behavior by Delta by not paying loan commitments to Terralumen and in turn
Terralumen sells the property in Spain to pay off the loans
Financial Analysis
Blue ridge.xls
Strategy for dissolution
1. Sell off the JV and divide the sales b/w delta and terr.• Terralumen won’t sell the business• Family owned so pride is a concern• Spanish culture is more value driven hence money might not be the first choice
2. Spilt the JV and keep 50 % of the business • 6 -6 stores• Lack of human capital to run the business in Spain• b. Delta doesn’t want to create competition
3. Sell the business to Terr.4. Terralumen sells business to DELTA or becomes a passive partner
• a. Delta wants control of the business• b. Terralumen wants to secure the pride and of course run the business
Class discussionsJV are the largest method for international expansion for most the firms.
• Costas stand point-Continue with the current JV
Blue Ridge strategy was different from the strategy of Delta. Blue Ridge always depended on the JV partner for business development while Delta was always “On its own” and this very reason caused the business tension
Price etc would be determined on who is more desperate for the JV to break up in this case. Delta wants more from JV then Terralumen, hence the valuation of the company should happen from Terralumen. side.
Evaluation of the firm is around 29 million – from the point of view of Terralumen50 million – from the point of view of Delta
• Delta should have brought their own management a year later, and Costas should have been given enough time to bring this JV to a respectable close, that would have in turn
• Would have helped them to grow in Europe (France, Germany) • Flexibility in the business is extremely important factor for International business expansion. • Costas can help Delta only in the terms of his personal relationships with Terralumen and not in
terms of size of the deal (Money).
Importance of a relationship in JV and Cross cultural issues management are the key for a successful JV.
Learning from the case
• Need to have long term relations in JV• Role of partners should be clear• Individual relations also play a big role• Maintain good relations necessary for future• Evaluation of JV if dissolution is being spoken should not be brought on the table early in the
discussions• Understanding the culture of the country and your JV partner and being sensitive about it is the key to
a JV success• Society is what drives business
Case 5 : Bain & Company
Before Class Notes
What are the primary requirements of the Consulting Industry?
1. Acquisition and Retention of talent2. Knowledge of the local market3. Productivity/asset utilization4. Developing long term relationship with clients5. Innovation – thought leadership6. Standardizing client experience, building trust and managing expectations7. Deliver tangible benefits
Bain’s competitive advantagea. Service Consistencyb. Efficient communication with clients and open culturec. High quality workforced. OPERAe. Inclusive leadershipf. Lower customer acquisition costs
Internationalize?Mexico: Maybe
1. Already an office in Costa Rica – 100 people2. Senior employees may relocate3. Spanish / Mexican speaking person
ECF Takeover: Need to check after class1. Big client base2. Manpower of 6003. Common consulting philosophy4. ECF will help in competing with McKinsey. in Europe5. Average Age of employees of ECF greater than Bain standards6. Non MBAs for the majority of the workforce7. Re-organization of business will be required after takeover
Emerging Asian Market
1. Cost of developing business in Asia and need to get people with local knowledge and tap the business schools
Employee retention through ESOPS, Faster promotion, and work in diverse fields
Class Discussion
Problems in internationalizing
1. Difficult to maintain “One Bain Culture”a. Unique Value proposition (There are two kinds of value proposition – Peripheral and
Internal)i. Extended Relationships with client
ii. Resultsiii. True Northiv. Stay with the customer
• Tools – Frameworks – Solutions = Bain focused on the problem of the firm rather than approaching firm with a pre-determined solution (Classical Consulting Approach)
• Existing model difficult to scale up as Bain needs people who are flexible and have wide industry experience and are not rigid
• Pursue Boutique Consulting• Frame local business models
Primary question of increasing bandwidth:
Learning from the case
1. Each organization has its set of values which are difficult to change 2. There should be synergy of values between organizations looking for merger3. A business model that differs in different geographies is possible4. Integration issues are of prime importance
Case 6: Silvio Napoli at Schindler India
Before class Notes
• Business plan created by Napoli after extensive research and market study• Move to Delhi came with own set culture adaption issues• Had backing of top management of Schindler• Success of the Swatch project gave confidence to replicate similar strategy in India• Entry plans after consultation with BCG• Team recruited with right mix of experience and expertise• Half monk- half warrior theory • Contrasting personalities of Singh and Napoli but blended well for overall strategy• Growing Indian market and low penetration of elevators • Market share of Otis was huge at 50 %• Remaining market share was distributed• Service was an important factor in the Value chain of elevators
o R&D – Engg – Production – Installation – (Service – Repair – Modernization – Replace)• Price sensitivity of the Indian market was high but scope was there to tap on the service aspect• Unique advantage was sought through the standard product strategy – No adaption to local market
could end up being an issue• Over dependence on Outsourcing of parts for elevators• Difference of opinion regarding implementation of strategy with other members of management • Low rate of orders• Three problems faced by Napoli
o Increase in transfer priceo Increase in Import dutieso Lack of support from European RnD
Class Discussion
• Need to plan strategy before embarking on the action plan
• Formulation is glamorous, Execution is difficult – commitment to strategy is of prime importance
• Hard results require hard willingness
• Warrior –Monk equation changes with age
• Primacy of corporate over local culture’
• Being warrior is not enough for a GM
• 2 steps fwd may need one backward
• Need to be in a place that forms or executes strategy
• Develop monk quotient
Q1. Was Silvio Napoli was the right candidate for the job?
Was Silvio the right candidate?
Positives:
- Business plan owner
- Risk taking ability
- Innovative
- Top management
- Energetic & courageous
- Trust worthy
- Buy-in from higher management
Negatives:
- Lack of cultural experienced
- Understanding
- Low monk quotient
- Inflexible
- Apolitical
Luc Bonnard Assesment :
1. He has built a good team with 2. Yet to deliver on the strategy
a. Standardized productb. Outsourcing most of the parts of the elevatorc. Localization – outsourcingd. Target low and middle segment of the business
Value chain in the elevator Industry
India was the testing ground and thus of prime importance for Schindler in their efforts to expand further in the regionThus it had support of the top management but internal issues too need to be looked at. Getting a work done by putting pressure from top not always the right startegty
What should Schindler/Napoli do?
1. Address Transfer pricing 2. Work with Europe Rnd to get quick access to required technology 3. Address Swiss office on their fears of losing authority and control over design
Learning from the case1. Culture knowledge of prime importance while expanding2. Competent leadership team and local knowledge helps3. Maintain good relations with parent organization while in foreign market4. The strategy once decided should be flexible but if one has conviction in it, should ensure that the
same is followed in letter and spirit
Case 7: Jollibee Foods Corporation (A)
Before class Notes
1. How was Jollibee able to build its dominant position in fast food in the Philippines? What sources of competitive advantage was it able to develop against McDonalds at home market?
Ans : Jollibee’s business model was based on the strong fundamentals of the Five F’s viz.
• Friendliness
• Flavourful Food
• Fun atmosphere
• Flexibility towards customer needs
• Focus on FamiliesThese in addition to its distinctive menu that catered to the Filipino taste were the key differentiators that helped Jollibee establish its strong presence in the Philippines market.The political change that swept the country in 1983-86 actually helped Jollibee establish its presence as this period saw deteriorating international investment in the Philippines market.
Taste and Size of the Champ burger was probably the only factor that held back the McDonald juggernaut. Thus knowledge of the Filipino taste and their preferences were the key competitive advantages for Jollibee against McDonalds.Once the political scenario improved in 1986 and McDonalds refocused on expansion, Jollibee had 31 stores as against 11 which they had in 1981. Thus the competition proved too much for McDonald.
2. How would you rate Tony Kitchner’s effectiveness as the first head of the Jollibee’s international division?
Kitcher was a seasoned professional and took some key steps towards the international expansion of Jollibee.
New Initiatives and Issues
• Move from random expansions to focussed expansion strategies
• Creation of the International division
• Modified entry strategies for different markets
• Move from local to world class
• Target expats Theory
i. Not always workable as Filipino food choices depended on their social status in that country
• ‘Plant the flag’ and First mover advantage theory
i. Brand awareness- Yes
ii. Royalty from franchisees- Yes
iii. Profitability – Not always
• Concept of FSM was accepted by all franchisees but that constrained the limited resources of the International division.
• His model required a lot of time and effort on the part of the parent company where they had to hand hold a store for an entire year and closely monitor its functioning and sales figures *( from daily to weekly to monthly)
• Focus on quality – Surprise checks ensured quality but took too much of time
• Marketing division too were involved to a lot more extent and were sharing the workload that ought to have been borne by the franchisees
Differences
• Too many independent decisions against the proven fundas of the parent org
• Poaching from domestic teams
• Alteration of the menu – Alienated the domestic RnD as also introduced operational inefficiencies
• Maverick V/s the Bureaucracy
• Led to creation of two separate vertical entities with virtually no interaction or knowledge sharing
• Earners v/s Spenders
• Logo Redesign meetings proved to be the last straw as Kitchner’s opinions were found to be too obtrusive
Financials
• Rapid expansion not focussing on profitability ( 8 new markets – 18 stores in 2 years)
• High cost of supporting unprofitable stores
3. As Noli Tingzon, how would you deal with the three options described at the end of the case?
Papua New Guinea - Start the franchisee
• 5 million people – need 16 stores ( 1200 for 75 million in Philippines)
• Currently only one 3 store chain that had broken ties with its partner ( Low competition)
• Chance of expansion through the petro retailer
• Franchisee willing to invest – 0 equity risk for Jollibee
Hong Kong – Do Not Start right now
• 1 out of 3 stores making profits ( only on weekends)
• Very low volume of local Chinese crew turning away potential Chinese local customers for fear of not conveying properly in English
• Rigidity of menu not catering to local tastes
• Rigid Philippine management on changes for local market
• No Chinese in local management
• Overloaded staff focussing on day to day store management and little or no time to design growth strategies
• Attractive locality to open new store but Inherent problems need to be addressed first before expansion. The busy intersection may give it brand visibility but if similar operational problems surface there too, it would do more harm than help
California – Start the Ops
• One million Filipino customer base – affluent
• Strong support of the Filipino –American community
• Low concentration of competitors
• Interest of local investors
• TTC’s personal interest in the expansion giving it the management thrust.
• Expansion plans slightly over optimistic and need to be relooked at after the performance evaluation of the first store.
Class Discussion
Papua New Guinea?
• Understand how the fast food industry generates profits
• Understand the percentage of population who would be able to spend on fast food.
• The number of stores required to enter 80 is quite high and will not be sustainable
What are the critical factors for Jollibee to compete with McDonalds?
• Local taste ,Affordable prices, Close relationship with franchisees, First Mover Advantage, National Identity, Confident Management
Strategies:
Plating a Flag – Strategy provides a first mover advantage, but caution is required in selecting markets
Target Expats – Good strategy, but again look for markets that has correct kind of expats mix
Local Adaptation – Tastes differ and hence adaptation makes sense as far operational efficiency is not compromised
Problems with International Organization
1. Poaching of employees
2. Higher positions to international employees so dissatisfaction in domestic employees
For global aspiration it’s important to decide what kind of org structure one company should have. One of the proven solutions is to have a geographic structure rather than domestic –international structure
Get buy-in from top for resource approvals but for operational issues bring solution from bottom up and don’t try to influence it from the top
Learning from the case1. Last mover too has advantages2. Internationalization should be done with a strategic pace and a first should get into a
market only if i. It can earn profits
ii. Market has some geographic advantageiii. Market has some learning potentialiv. For signaling
3. Geography based structure is workable 4. Parent organization if financing should have control on the functioning of other foreign
operations 5. Ideally international divisions should be made separate units of a geographic structure
including parent organization
Case 8: Infosys Consulting in 2006
Introduction:
- The company was started in April 2004 in USA
- Was initially a 100% subsidiary of Infosys Technologies
- Main objectives were to:
- Increase revenue through repeat business
- Provide customers with much more than purely customized software
- Expand services offerings to provide and end-to-end solution
- Little investment in infrastructure in the US
- Highly mobile ICI workforce to work out of either client offices or Infosys Technologies offices. This created cost advantage over Accenture and IBM in 2004
- Leverage existing Infosys Technologies accounts to engage business heads instead of IT directors to create high value business transformational alliances
- However, limited brand equity, investment allocation and recruiting activities thwarted its initial foray into the consulting space
- In under 2 years
o Acquired 100 consulting engagements
o Serviced by 200 employees
- Headed by 5 Managing Partners from consulting business
- Driven by commitment to change rules of the game of consulting industry- followed a very different business model using GDM
IT in 2006: It industry in 2006 was divided in 2 distinct groups based on the models that were followed. On the one hand big consulting firms such as the IBM and Accenture were moving down the value chain by entering into the low end back office jobs such as BPO
Why Internationalize?
- To broaden their offering
- To move up in the value chain by adding Business Consulting practice
- Infosys Technologies started with in house consulting arm in 1999 but had limited success
- To combine its reputation in business execution with consulting to create a next generation IT Service Company
- It went for hybrid model – created a US based wholly owned subsidiary
- Crossed the billion $ mark in 2004 and established stronger brand equity
The firm started to develop its consulting practice. Infosys had 3 options for investing in consulting offerings. It could grow organically, enter a JV or acquire an established consulting firm.
While the Indian IT firms such as Infosys, Wipro, and TCS were seeking to move up the value chain to provide business consulting solutions. Although the intention of these groups was the same, to provide end-to-end solutions, the approach to implementation and delivery was different.
Onshore US firms IBM and Accenture leveraged the Indian centers to gain from the cost differential and offshore the implementation work. The ‘center of gravity’ stayed in US and work, as and when needed was sent to India.
On the other hand, the big 3 Indian forms had their centre of gravity in India and consultants at onsite were utilized as and when needed to co-ordinate with the client or seek clarifications. The GDM model also called as the ‘right shoring’ model believed in getting the work done where it’s most relevant and effective.
GLOBAL BUSINESS DELIVERY MODEL
ICI: The ChallengesTo show a single face to the customer there is a need to build a seamless interface between parent and subsidiary. These are the some of the major challenges:
Cultural: There were differences in culture and values of ITL and ICI. ITL was an Indian company with majority Indian employees. In contrast, ICI was a Global unit with greater representation of local people (more than 80% of consultants are local citizens).
Organizational: Both companies had different organization structure. ITL had traditional pyramid hierarchy where as ICI had flatter organization. This typical structure of consulting firm would lead to faster career growth in ICL.
Compensation: Another major difference was different compensation structures. ITL was not the highest paymaster but ICI was a competitive paymaster. Reason was that ICL had to attract talent from the higher end of market.
Cannibalization: 70% of ICI business derived from existing ITL clients. Therefore senior account managers at ITL would feel threatened at having to share till date exclusive client relationships. This could possibly lead to mistrust.
Infosys management decided to overcome these challenges by implementing these points:‘One Infy’ program was initiated to encourage collaboration. Under this, existing incentive scheme of sales force was modified. Training programs were done for cultural integration, forums were built for people to meet and share best practices across business units. Successful collaboration projects were rewarded.
‘Fork in the road’ program was initiated where lead was taken by the unit which could best serve Client’s need. Clear demarcation of ownership of sales pursuit strategy, accountability, decision making was done.
ICI brought new clients for ITL (over one dozen fortune 500 firms). ITL has a long term strategic goal to fulfil using ICI. ITL looks at ICI as an opportunity to transform company culture and build Infosys brand as Global Transformation enabler.
Mutual respect was developed between ICI & ITL. Managers were looking to learn from one another. ITL recognized that ICI requires senior management attention to perform well.
Is ICI a Threat to IBM & Accenture?
ICI is not really a threat to the US consulting industry incumbents because,High end Consulting requires experience and deep knowledge of the industry. Hence to provide credible threat to IBM and Accenture, ICI needs to attract the right talent and the right assignments to gain the much needed exposure.Moreover ICI has some serious issues to deal with. Integration of ICI and ITL on GDM may not be easy. Consulting jobs essentially require substantial onsite presence where GDM model may not bring great results. In addition, GDM has its own problems as employees need to co-ordinate across geographies and across times. This comes with its own share of stress in maintaining work-life balance. The case talks about an employee blocking out quality time to put his daughters to sleep. But working from home after work hours is not always easy.Hence, wait and watch is the best policy for big players. ICI will take time to scale up and develop domain expertise and consulting skills.
To get leverage from ICI, Infosys Technologies should:
- Offer higher value added services in existing relationships
- Ensure buy-in of ITL divisions to outsource consulting to ICI
- Promote “One Infy” to ensure single face to the client and sharing of global best practices
Case 9: House of Tata: Acquiring Global footprint
Factors that impacted Globalization of Indian firms’ post 1990?
External Environmental Factors• Economic liberalization – Giving Indian firms the option to go global• Entry of Global firms in India which increased the inland competition• Easier access to capital, low interest rate, investment grade rating for India• Higher growth rate of India
Organizational Factors• Market Risk diversification • Reduce the dependency on Indian macroeconomic factors• Growth in home market was restricted due to small market size and underdeveloped
infrastructure
Assessment of globalization strategies of Tata group operating companies, particularly Indian Hotels, Tata tea and Tata steel
Indian Hotels Globalization objective
Establish a presence in international markets Provide seamless connectivity to global customers
Indian hotels were quite conservative in its globalization strategy and went for global acquisition only when it suited the Taj brand. It mainly went for management contract with small equity position in properties instead of outright ownership. It did not go for any hotel chain acquisitions rather focused on only those stand alone high end properties that were at par with the Taj Brand. The company financial shows that this conservative strategy worked well for then with a ROA and ROC highest among its competitors.
Tata TeaGlobalization objective –
Target growth opportunities Transform itself into a branded tea company
Tetley AcquisitionInitially Tata tea in India was a small player in a saturated non branded market. To transform this image it went for acquisition of Tetley, which was the only branded Tea Company and not owned by any of other consumer goods conglomerate. With Tetley, Tata got an entry into advanced markets with a value added branded tea product. Tetley’s business hence complemented Tata tea.The acquisition was a leveraged buyout by non recourse debt, Tetley been much bigger company than Tata Tea. The Debt equity ratio stood at 210% in 2006. This acquisition came as eye opener and made TATA learned intricacies of M&A financing and gained confidence about such big ticket acquisitions.Also the acquisition was in line with the objectives of internationalization. However, post acquisition Tata Tea remained a loss making company.
Tata Steel Globalization objective –
To become a major global player and also to protect itself from hostile takeover due to the consolidation happening in global steel industryDe-Integrated strategy to expansion in bigger marketsTo expand into Mature Market for gaining R&D capabilities and operating practice developmentsGlobal expansion targeting iron ore and coal mines. Vertical integration leading to low and stable raw material costs leading to raw material security.To move to branded value added productsTo get logistics control with global vertical integration
Corus Acquisition With the Corus acquisition, Tata Steel moved to become 6th largest steel producer from 56th place. IT provided access to European markets and value added products like automotive and construction. This deal was also supposed to create synergies which would have saved Tata steel $450 mn in 3 yrs. The acquisition created strong Brand Equity for Tata. From financial side the entity would gain and break even only if the steel prices remain high post acquisition.On the other hand, it also posed much higher risks. Corus was not as backward integrated as Tata in terms of raw material and hence the combined entity was exposed to fluctuations in raw material prices. Tata steel owned 80% of its raw material requirements where as the combined entity had only 17%. The deal was an again a leverage buyout increasing the interest burden on Tata steel. The TATA steel’s debt/equity ratio shows it had much significant leverage than its competitors.
Assessment of the role of Tata group center in the group companies’ globalization
• The group centre worked toward creating a synergy between the group companies and assists them in acquisition matters
• Bring together representatives of different group companies to identify mutually beneficial initiatives and share best practices
• It was the International umbrella for brand promotion, media relations, procurements, and government relations
• It internationalized common business processes such as HR, Finance and M&A across the group companies when it went global
• It provided financial support to the group companies. Tata group topped up money if a company fell short of financial resources while going for an acquisition.
• The group provided assurance to target company regarding deep pockets parent capable to support future operations and expansion
• Group established integration committees to realize synergies after M&A. Project Prune is one example – where common procurement for all group companies save 32M $ in year 2005-06
• Talent Scouting – Identifying potential talents within the group and develop Managers at corporate level
Should Tata motors bid for acquiring Land Rover and Jaguar units as part of globalization strategy? Why?
Tata motorGlobalization Objective –
Access to market and technology
De risking from cyclical nature of Commercial Vehicle businessTo learn about product and consumer preference in developed marketCombat the strong foreign competition in domestic market
JLR Acquisition can provide Tata motor with the following benefits:
• An insight to developed car market and consumer behaviour and technical and product knowledge, which in turn will help them gauge where Indian market would be heading in next couple of years.
• An opportunity to move into premium segment with iconic brands like Jaguar and land rover and also access to hi end automotive technology.
• The possibility of sharing of design and engineering capabilities will help Tata to develop products for other high end segments in domestic market and offer products at all price points
• Opportunity to compete against global companies which are entering the domestic market. Also ability to compete with domestic competitors going global.
• In case of TATA not going for acquisition, other domestic competitors who bided for JLR would have acquired JLR.
Challenges: Tata group had a strategy of never acquiring a sick company. It acquired profitable companies and never didn’t change the existing management and utilized the post merger synergies to drive profitability. In contrast, Jaguar and Land Rover was a loss making entity and reviving it would require huge investment on the part of Tata motor apart from the debt that it would require for the acquisition (current debt/equity 94.6%). This would add to the existing burden of the group which had recently acquired Corus and had a huge capital investment planned for Tata motor of around $2.98 bl.
ConclusionConsidering the above pros and cons of JLR acquisition, Tata motor should go ahead with the deal as the acquisition was in line with Tata motors internationalization objectives. Tata Motors was backed by $60B Tata group, and hence would be able to bear a $2 bl additional debt financing. Apart from this, the India is likely to become a big market for premium cars and Tata Motors should build its capability to cater to all segments of this huge potential market. Finally, Tata motor’s competitor were bidding for JLR and if Tata Motors doesn’t take this opportunity, one of its competitors will and this may be a missed opportunity for Tata to internationalize its brand and gain from the synergies in the long run.
Case 10: ICICI’s Global Expansion
Before Class Analysis
Strengths of ICICI
• Superior Technology
• Capable Leadership
• Strong Corporate relationships
• High Operational efficiency
• Decentralization of authority
The Need to Internationalise for ICICI
• Increase Revenue Generation by raising Funds through International Remittance business
• Expand consumer base and serve domestic corporate clients in international markets – Follow the customer strategy
• Increased scope of New market development
• Increase consumer base to cross sell
• Increase knowledge base by learning about new products/ markets
Which geography to penetrate? What are the Products and Customer Segments?What is the Number of Markets to Enter?
Market Selection Criteria
• Concentration of the Diaspora Population of Country
• Local Competition in prospective markets – Indian Banks, Money Transfer channels
• Market Size and business potential
• High Remittance Margins
• Regulatory Environment of prospective country
Financial Data for Market Selection
Worksheet in ICICI.xls
What are the Entry Mode – Joint Venture or Own Subsidiary
NO JV go alone to US, UK, Canada, Singapore
• Need to cross sell products
• Technical ability to serve complete value chainJV with Exchange houses in UAE
• Benefits to Exchange House
– Efficient alternative to Western Union
– Providing service and products to Exchange house’s customers in India
• Benefits to ICICI
– Remittance Collection points
– Potential customer baseWhat would be the staffing composition - Foreign Staff or Local?
• Leadership Team should be from India
• Operations can be managed both by expats and foreign nationals
• Local operators to be employed specially for foreign specific operations
Beyond 2001
Expansion Steps
• Expanded Range of products focussing on NRIs and PIOs
• Also Focussed on supporting Indian companies in raising corporate and project finance for their investments abroad as well as foreign currency financing for their investments in India
• Built a large network of correspondent relationships with international banks across all major countriesCurrent Product Range
• Unique products and solutions to international customers such as
o money2india remittance services,
o tradeway,
o remittance tracker,
o offshore banking deposits,
o foreign currency non-resident deposits,
o non-resident external fixed deposits,
o deposits maintained in Indian rupees etc
International Journey
o 2002 Representative offices in US, UK
o 2003 First foreign branch in Singapore,Subsidiaries in UK, Canada
o 2004 Branch in Bahrain,Rep Office in Bangladesh
o 2005 Branches in Dubai, Hong Kong,Acquisition of Russian bank
o 2006 Branches in Belgium, Sri Lanka,Rep offices in South East Asia
o 2007 Branch in Russia
o 2008 Branch in New York/Frankfurt
Products and Mode of Entry
Country Offerings Entry-Mode
UAE Money Transfer and Wealth Management
Representative Office
Bahrain Personal Banking, Corporate Banking (Treasury, Corporate Finance, Trade Finance, Structured Finance, Syndicate Loans) and NRI services
Branch
Qatar, Oman, Kuwait, and Saudi Arabia Personal Banking, NRI Banking, Corporate Banking, Business Banking
Branch
United Kingdom (UK), Retail, corporate and investment banking services through eleven branches located in UK, Belgium & Germany
Representative Office
Germany, Belgium Also aims to attract high-value private clients through its investment instruments.
Russia ICICI Bank Eurasia LLC offers a wide range of Corporate and investments finance products, as well as provides services for retail customers.
Acquisition
Singapore Structuring financial solutions for corporates with India linkages- Syndicating loans for corporates in the Asia-Pacific region, Retail Banking
Offshore Banking Unit
China & Hong Kong Personal Banking, Corporate Banking (Treasury, Corporate Finance, Trade Finance, Syndicate Loans) and Correspondent banking
Representative Office, Branch
Staffing
• International Business Group (IBG) was set up in 2002 now consisting of over 3000 people.
• It is further supported by nearly 300 technical people and 150 operational people.
• Bulk of the staffing in the international branches from home country
• Management cadre is especially from India
Global Crisis
• In March 2008, ICICI Bank’s overseas operations reported mark-to-market losses of $264.34 million on account of its exposure to credit derivatives and investments
• Among Indian banks, ICICI Bank has the highest credit derivatives exposure, around $1.5 billion. Including its overseas subsidiaries, the aggregate exposure to credit derivatives is around $2.2 billion.
• In 2008, ICICI Bank's profit took a hit of more than Rs 1,050 crore ($264 million) for its investment in the European market at the beginning of the subprime loan crisis in the US.
• In September 2008, with Lehman Brothers filing for bankruptcy in the US, ICICI Bank was expected to lose approximately $80 million (Rs375 crore), invested in Lehman's bonds through the bank's UK subsidiary.
Results and Key Highlights
• Total PAT of UK, Canada and Eurasia subsidiaries was Rs 383 Crores (5.6% of ICICI PAT) in 2010 from Rs163 Crores (2.63% of ICICI PAT) in 2009
• During fiscal 2010, the proportion of retail term deposits in total deposits in ICICI Bank UK increased from 58% at March 31, 2009 to 66% at March 31, 2010.
• The proportion of term deposits in ICICI Bank Canada remained at over 80% of total deposits at March 31, 2010.
• With the growth in domestic branch network, franchise among NRIs has grown significantly over the last few years.
• ICICI’s NRI customer base currently stands at over 600,000. It continued to focus on developing products and service offerings to cater to the requirements of the NRI community.
• During fiscal 2010, ICICI also focused on improving customer service across channels through various technology based initiatives and by providing value added relationship offerings like expert views on investment and finance related matters.
CONSOLIDATED LEARNINGS
Motives to Internationalise1. Growth imperative2. Better profit realization3. Efficiency imperative4. Spreading risk5. Accessing technology6. To be present in the lead market7. Learning & innovation8. Pre-empting competition -strategic positioning9. Defending the home market (cross parry)10. Following the competitor11. Following the customers12. Bandwagon effect
Entry Mode Criteria1. Market attractiveness -Short, Medium & Long Term2. Size, growth and profit potential3. Country risk exposure4. Regulatory situation5. Strategic importance of the country market6. Industry structure and nature of rivals7. Urgency of entry8. Prior company experience9. Level, time and cost of local adaptation10. Availability of local partners11. Uniqueness of the Business model12. Need and ease of transferring core competence13. Desire or need for control14. Corporate culture
Speed to Entry Factors1. Competitors are entering or have entered2. Easy for Competitors to replicate Success3. Global customers are already present4. Scale Economies are extremely important5. Good local partners are limited in number6. Can secure government approval in preferential terms7. Management’s capacity to manage expansion is high8. Possibility of brand building at a low cost
International Strategy 1. Never black and white2. Varies by industry and segment3. Varies over time4. Normally occurs first within regions: Triad5. Ultimately is a firm’s strategic choice
The qualities of a GLOBAL MANAGER1. Ability to build alliances and business partnerships2. Entrepreneurial and initiative taker3. Flexible & responsive
a. Different markets, different needs4. Cross cultural Communication5. Networking6. Managing cultural diversity
a. Be sensitive to others while being grounded in own cultureb. Managing conflicts arising out of cultural diversity
7. Managing Personal Growth
