The Salim Group - Case Study Example

? International business strategy: The Salim Group BY YOU INFO HERE HERE International business strategy: The Salim Group Critical evaluation of success potential The Salim Group is so distinctly diversified in multiple industries, ranging from noodle and food production to chemical and property investments as a transnational company, that maintaining a singular business posture that is streamlined with core values and principles is a feat of extreme difficulty. Cultural variables from one region to another do not coincide that have impact on the regulatory environment, consumer and business buying behaviour, and even in the internal structural dynamics of The Salim Group related to the management and human resources functions. However, Anthony Salim and his executive leadership group believe that being flexible to these unpredictable and changing dynamics of international culture and business competition is the key to success. Bartlett, Ghoshal & Beamish (2008) identify the concept of the coordinated federation, which is essentially a conglomeration of pre-existing core principles that have found business success at the headquartered centre of the company and then distributed equally across international boundaries. The Salim Group takes the advice of Bartlett et al. in not taking this rather unproductive distribution of core principles and then forcing them throughout the transnational environment and the business’ multiple industries. Instead, Salim advises on being adaptable to changing market conditions. This flexibility is a success factor to be more responsive to the external market environment. For example, the Salim Group faced public backlash with perceived corruption from the Indonesian government between the Salim Group about its investment banking practices (Dieleman, 2006) for divesting 107 different assets to the Indonesian government. When these assets were finally sold by the IBRA, public outcry about balance payments related to their own personal interests gave the firm negative publicity. Though Salim attempted to be a fair negotiator built on a foundation of perception of being a fair business, the influence of public awareness and perception limited the scope of its total marketing influence for future negotiations of this type. Though this is only one scenario that occurred with the Salim Group, it indicates that regional government and other influencing bodies in the regulatory environment continue to change the internal dynamics of how the business is operated and/or divested. This is why Salim continues to travel, personally, to different regions of the world to gain an understanding of what is driving governmental forces or cultural forces in key growth markets or existing markets so that the business can be structured accordingly or new strategies developed based on primary data research analysis. This type of flexibility by taking a proactive stand to leadership and research is a key success dynamic. Since more than one legal basis for operations drives this transnational company, such flexibility is a predictor of future success by fully understanding the forces that will impede business success or improve its competitive or public relations position. Anthony Salim is also open to being approached by new investors from multiple regions of the world in order to seize opportunities to expand the business or put it into a better financial position over the long-run. Salim fully recognizes the strengths and weaknesses of the firm, such as his indication that the group is not fluent in technological prowess, thus not having an attitude of superiority in any one division that might not be supported by actual business realities. Salim relies on synergies produced from acquired businesses or other strategic activities involving a secondary business and allows the firm to capitalize on these strengths through acquisition. In many ways, the case study reinforces that Anthony Salim is more focused on consumer relationship management and the marketing principles for sales that drives success in the industry. The consumer marketplace internationally is complicated and often unpredictable, driven by changes in the macro-level environment and related to psychological purchasing intention. By understanding marketing principles related to the buyer and the environment where product is sold, Salim leaves it open for experts in acquisition to handle these technological issues while being adaptable to changing consumer market conditions. This is yet again another predictor for success for the Salim Group. Salim’s informal management style also speaks toward a decentralised company where individual innovations and knowledge in key systems is appreciated. However, Salim recognises the need for control systems to measure whether certain objectives are meeting with intended strategic goals that have been developed (Dieleman). The decentralised structure provides more opportunities for ingenuity that shows the group’s overall flexibility related to human resources that can bring significant competitive advantage. However, detail associated with control systems indicates more rigidity in management style and purpose that could potentially disrupt common human resource values such as autonomy and employee-based control that could lead to turnover problems or other dissatisfaction issues. All-in-all, though, despite the high level of measurement control, the decentralised structure is supported in most cases by Bartlett et al. (2008) as a functional strategy for a business operating in a global environment with many divisions and product lines. This decentralisation should be considered a predictor for success in the future in terms of innovation production and employee unity at the cultural level. By positioning the company as that of a small industry player, Anthony Salim does not make the same mistakes as larger companies when considering investment and strategy. He has a very relationship management-minded focus to ensure that quality contacts are made and that investments occur as the product of majority ownership in key, desired business divisions. Where other larger companies in these operating industries, such as General Electric, are concerned about profit, Salim considers networking and relationship management to be flexible strategy related to the social environment. By not having a focus solely on profitability, new opportunities arise from satisfied customers and partners based on the integrity of the relationship between the Salim Group and the partnered entity. Salim believes in transforming first the dynamics of the business structure before trying to impose changes on external resource partners (Dieleman). This is another predictor of future success with relationship focus and adaptability to new opportunity development. Critical assessment of external relationships The Salim Group did not, necessarily, have a distinctive capability in terms of external relationship development in the 1980s and 1990s. For instance, the market conditions allowed for the creation of powerful conglomerates based on profitability that were borne of changes from import substitution to export-led growth in the presence of new industrialisation in the East. By attempting to control the value chain as The Salim Group grew, it had taken on the typical parameters of a profit-minded conglomerate concerned with investment and acquisition with less focus on relationship development. However, this was a time period where such relationships were commonplace in the pursuit of profitability. There was also a close connection to the ruling political family in Indonesia in the 1990s that led many in public to believe that Salim was using unfair advantages with intimate knowledge of the activities and future direction of politics that were giving them competitive edge unethically (Dieleman). Thus, the public relations image of the Salim Group had the potential to be tarnished even though the company was only conducting operations much like today’s largest powerhouses, such as Unilever. It does not seem that relationship management or the potential public backlash of strong political alliances was of much concern to the business at this time. Of course, it was not fully developed under the new leadership of Anthony Salim during this period which would seem to explain its inability to develop sound relationships and remained devoted to profiteering primarily. However, in 2006, the company is a completely different entity that values the integrity of customer and political relationships in terms of its public image and the sanctity of quality investment practices that are conducted ethically and fairly. Bartlett & Ghoshal (2000) identify that there is a need for offshore champions who can provide a credible voice to transfer assets and also create influence outside of the home country of operations. Salim, as a traveller conducting relationship development and research on foreign market activities, acts as this voice and therefore strengthens the competitive position related to customer relationship development. However, the key issue facing the firm is the ability to delegate these responsibilities to credible managers and the company has difficulty in finding the right fit for certain management roles (Dieleman). There should be more focus placed on recruitment for management level positions in all of the Salim Group business divisions to assist Salim with the same attitudes associated with relationship-building and ethical business philosophy. Bartlett et al. (2008) again identify that in order to be a successful transnational entity, there should be continuous flow of knowledge, information, services and people across international borders. A common business principle is expatriation to ensure that core values are extended across international boundaries (Bartlett et al.). This is problematic for the Salim Group in locating this type of talent that can act as a similarly-modelled representative for the group to alleviate some of the burden from Anthony Salim who takes too much toward the executive function. Innovations and ingenuity are stifled in this process by not having knowledge exchanges from multiple members of management with unique insights. Bartlett et al. (2008) again reinforces that the coordinated federation is not the proper activities for a successful transnational company and should instead be polymorphic: to be able to have flexibility to transfer core values but also sustain adaptability in regionally-specific cultural and business development patterns with unique insights achievable. By having only one representative take on the offshore representation for the Salim Group, there is much less room for change that is often promoted by having multiple individuals to brainstorm concepts and gain primary market research. Expatriation is something that should be developed more succinctly with the group in order to provide this flexibility. Salim likes to keep a low profile from media sources due to his experiences during the Asian crisis and also the situation that occurred regarding his perceived unethical relationship with President Suharto. He believes that press releases or other media statements will surely lead to scepticism about the integrity of The Salim Group, however this attitude misses out on key public relations and advertising potential by remaining silent in these situations. Bartlett et al. identified the public relations nightmare that occurred with Nike regarding its labour practices in low-wage countries as it related to production. By attempting to keep this part of their business secretive, Nike experienced even more public outcry when it was uncovered that reports of the poor labour conditions in some of its plants had been brought to the firm’s attention prior to the public reporting (Bartlett et al.). Keeping a low profile with such a diversified business removes opportunities for more investor-related confidence and also does not expose the business to its key markets successfully. The media is a low-cost resource that provides ample advertising when statements or press releases spotlight achievements or business rewards that have been received and Anthony Salim is not taking advantage of these opportunities. This is an issue in terms of protecting and developing its resource strengths in terms of image and publicity. Otherwise, the Salim Group seems to follow success patterns related to understanding the external market conditions that impact business and how to exploit its resources effectively to gain new market share in diversified industries. This is evident in strategy development in Australia in the wheat industry, having the internal culture necessary to provide this expertise to develop new investment potential. As Bartlett et al. (2008) identified, some elements of the coordinated federation that transfers existing expertise across international borders can have some element of success so long as it is coupled with flexibility and regionally-specific cultural business practices. New relationship development in Australia would definitely require such an approach and Salim has the expertise to ensure this is a reality for improving profit and relationship management, this is especially true if public relations were used more effectively as an advertising tool. Lessons learned from late movers The largest lesson that the group can learn is the case of Samsung in terms of its electronics distribution and sales strategy. Samsung maintained the same posturing in terms of its management personnel being in one place, the centre of operations, and did not have primary knowledge about how their products were being treated in foreign markets. Bartlett & Ghoshal (2000) identify the situation where, when Samsung finally took its executives overseas to witness the retail sales environment, it found its televisions stocked in dusty clearance centres of the retail centre whilst competitive products were clearly displayed and maintained their integrity in terms of pricing structure. Samsung had not given enough attention the viability and importance of marketing and advertising in the United States which was product of poor oversight and also not having the flexibility of expatriate leadership which has already been identified as a key source of knowledge exchange and proper resource structuring. Samsung did not understand the dynamics of consumer behaviour in the United States or the value curve as it pertained to the advertising function. By being a late mover in this industry, along with their lack of focus about the importance of first-hand encounters with the retail sales environment, Samsung lost considerable revenues and the opportunity to develop relationships with customers. Salim has combated this problem by being more open to travel and conducting first-hand primary data about the external environment in multiple dimensions of product and business relationship development. This was clearly a lesson learned from the earliest part of The Salim Group’s development. Anthony Salim can learn the importance of exchanging knowledge over international borders by developing an appropriate expatriate programme to ensure that data from a foreign sales territory is communicated in real-time to the executive leadership environment. Without some form of externalized measurement system in offshore business divisions, the day-to-day dynamics of sales, marketing, and consumer behaviour unique to a specific operating region cannot be known fully or effectively. As Bartlett et al. (2008) identified, such exchanges are critical to business success. Bartlett et al. (2008) again identify that transnationals are often focused primarily on cost reduction and also have a high level of local adaptability for regional preferences in the sales and operating environment. However, this can have limitations as it compares to late movers. Costs must sometimes be absorbed when a late mover, especially when existing competition already has a strong brand presence in the desired new market region. Being flexible enough to absorb short-run costs of advertising, distribution, or even new production facility development rather than acquisition might be necessary to streamline a product or service to fit the needs of the environment where it will be sold. To find success, the concept, again, of the offshore champion is sometimes vital to ensuring that real-time information is provided back to the centre of operations. By not having management in mobility positions to provide this knowledge exchange, the Salim Group, it runs the risk in certain industries to face problems like those found by Natura when it entered the South American market with major competition already in place like L’Oreal, Proctor & Gamble and Estee Lauder (Bartlett & Ghoshal). By not devoting enough top management for recruitment purposes in this region, the company had a difficult time leveraging its product line among this competition and could not identify key personnel to assist in building and implementing growth strategies. By relying on local talent, elements of the core principles that drove success for Natura were not being met and therefore competitive edge and sales revenues were impacted. This situation with Natura, again, reinforces the importance of knowledge exchange with key officials from the centre of operations and gaining unique and real-time knowledge of what is driving buying patterns or other influences that impact sales growth. Finally, The Salim Group can learn from late mover Ranbaxy, the pharmaceutical company. After entering new markets such as Russia and China, it realized that it needed strong brand in order to compete with major competitors on the value curve (Bartlett & Ghoshal). This required the flexibility to absorb short-term costs toward differentiation of product outside of that which is produced by competition in these markets. A significant portion of budget was devoted to R&D after this realization occurred and ultimately success was found. The Salim Group is not technologically superior in terms of knowledge of these systems and therefore elements of research and development are usually the product of synergies from acquisitions, as was identified previously in the report. The Salim Group can learn from late mover Ranbaxy in terms of creating its own dedicated research and development team that is focused on new product development as a proactive approach to diversifying its product line. Relying mostly on synergies does not give Salim the type of control that he demands in relation to quantitative measurement tools and he is losing potential for new market entry and new relationship development with more relevant products. The Salim Group, though not fully focused on high profit as a goal in lieu of relationship development, does not appear to have a dedicated research and development focus but allows such new products to be developed through acquired talent in multiple industries. The Salim Group is currently seeking fewer businesses with more majority control rather than diversification through extensions of different brands already existing in the company. This limits the scope of innovation, which is something that is part of the competitive environment especially in foods, banking, textiles and pharmaceuticals, areas where the group is already operating. Late movers, therefore, teach the Salim Group the importance of innovation as a competitive advantage tool to ensure the ability to retain customers and exploit new customers in transnational operating regions. It is necessary, periodically, to extend cost absorption in the short-term for long-term revenue gains, as was identified especially with Samsung Electronics. References Bartlett, C.A. & Ghoshal, S. (2000). ‘Going Global: Lessons from Late Movers’, Harvard Business Review, vol.78, no.2, pp.131-142. Bartlett, C.A., Ghoshal, S. && Beamish, W. (2008). Transnational Management: Text, Cases and Readings in Cross-Border Management, Fifth edition, London: McGraw-Hill Irwin. Dieleman, M. (2006). ‘The Salim Group: the art of strategic flexibility’, Asian Case Research Journal, vol.10, no.1, pp.1-25. Read More