The Development of Cumming Inc, Recommendations for Lego Group - Term Paper Example

Question (A) A memo To Chief Executive Officer, Cummings Inc From Consultant 30/04 Subject : Impact of Opportunities and Challenges presented by China and India to the development of Cumming, Inc China and Indian economies are commanding the world market today. The awakening of these two Asian tigers has taken the world in a storm. It is no doubt or arguable that every nation is following on their footsteps. Go anywhere, even in the remotest parts of Africa, and you will find one or two products from China and India. These Asian economies enjoy a number of natural and artificial factors. These factors have positioned both China and India at a far much better place to benefit from the idea of globalization. The goodwill portrayed by the political leadership has threefold accentuated the embrace and utilization of globalization to its best. Cummings Inc, being company based in Columbus and majoring in production of world class engines that enable power and run world economies, stand a chance to feel, in full force, the impact of Indian and Chinese presence in the American Market. Cummings Inc is global and this directly translates that it is competing for the same resources and same market which India and china are trying to venture in. It is noted with a lot of concern that China and India have penetrated nearly in all parts which were predominantly American markets and hence companies in America, including Cummings Inc has to review its strategies for it to compete effectively in the 21st century market. Opportunities presented by Influx of Indian and Chinese Activities to Cummings Inc Outsourcing China and India account for approximated two billion of the world’s population. Outsourcing has been very common of late. Many USA companies are finding it far much cheaper to get work done in India and china than in USA. This is business and Cummings Inc has to adapt to these radical changes. This primarily because Cummings has competitors and if it fails to an action then it will fail to survive the pressure. Opening up of branches in these two Asian countries will be the best place to begin. Labour The political environment in china and India is that of pushing for job creation. These governments are doing anything possible to see increase of job opportunities. As mentioned in the earlier, they hold a large population and this population need food, shelter and clothing. Life standards need not only to be achieved but also guaranteed and of quality. The political leadership in these two countries knows that it’s only through a better life that stability can be maintained. For this reason, they endeavor to welcome any investor to invest in their labor affordable market. Cummings hence has an opportunity to save a lot if at all it opts to shift some of its operations in China or India. In fact, it is very viable. These countries are considerably technologically sound and as one of the business activities of Cummings Inc is to design, then the designs can be taken to china or India for production. Market Cummings makes products which drive economies. China and India presents the largest market for any product. They are growing economies and definitely need these products from Cummings. The international agreements signed for doing business will enable Cummings to export its products with a lot of ease to China and India. It presents a rare opportunity for exponential kid of growth. Recommendations to the Company Firstly, I recommend that Cummings Inc to outsource in India or China. The standard of living in these countries is relatively low and hence Cummings will benefit from a reduced cost of production. A low cost of production directly translates to a stiff competition of the Cummings’ products in the global market. Cummings Inc ought to open up more dealer outlets of its products in China and India. This is beneficial in a way that the large population provides a ready market. The industrial growing state of these two countries definitely will need Cummings Inc products to drive their productions. Both China and India have invaded most of Africa, Caribbean and Latin America markets. The setting up of production units in these two countries will enable Cummings penetrate into these countries. This will be easier because, the exports in China and India are cheap mainly due to its foreign exchange policies and hence Cummings products will be cheap cost wise in these markets. Exhibit 1 shows some of the top products which US flooded in the china market and it can be seen that power generation are leading and thus Cummings stands a good chance to benefit from this trade. The percentage of vehicles exported is also recommendable and this implies that if Cummings shifts its focus to Asia fully, then it can yield great. To sum, the opportunities presented by china and India to Cummings Inc are many compared to the challenges of low priced products. Cummings should make use of these opportunities to take their level of operations a notch higher. Question (b) Lego Case Review and Recommendations Lego Group is one of the ideal cases of how management of multinationals can be complicated. Without proper analysis what the problem is, the situation can be as messy as possible. The Lego Group was driven into making of hasty decisions from its loss making history. When a company has made loss for a couple of years all the stakeholders become restless. More affected are the management team which is on its own is a stakeholder in the organization. Pressure builds up from the shareholders and other people who have vested interests in the organizations. This pressure leads into making desperate decisions. The worst that can happen to an organization is to lose confidence of what you are doing. This was a mistake Lego Group did. Lego brick, their only core product lost market. This called for immediate diversification of what to be produced. This move was the genesis of even more complications that befell this company. Many organizations end up in a similar. Despite the many cases of failure of such moves, companies whose commodity has been outdated, ends up in diversification. A change has effect and this is the part most managers do forget. Things do not remain the same again. Every action gives birth to multiple actions which if not well coordinated it results into complications similar to that faced by Lego group. It happens often in business circles that at times new stakeholders come in and turn things around than expected. Entrance of Flextronics into affecting affairs of Lego Group was indeed a great learning point for Lego Group. A new revelation was introduced that Lego Group is really special in a way. The lessons learned from the three year old relationship with Flextronics were enough to streamline the supply chain of Lego Group. This included the documentation aspects which are very important for any organization; more so to an organization that is as complex as Lego. Though a tedious process, documentation comes in with elements of standardization. This is something which Lego lacked for many years and putting it to practice just revolutionized everything. Things got better. Life after Flextronics marriage had it’s here and there. The lessons learned were very handy. Transparency in all the process became a culture. This accentuated control of the organization in many aspects ranging from production to sales. Handling emerging challenges and recognition of internal challenges is possible through proper documentations. Due to the interaction of Lego Group with the Flextronics, and what it went through, it sharpened its operations and reformed for better. It is recommendable that multinationals to be coordinated in a professional way to avoid cases of failure. Were it not for the new management of Lego that saw it fit for it to outsource, they would never have learned and applied those lessons in redeeming Lego. It was a great move and it’s better to learn from other’s experience. Coordination is key. This coordination is achievable through intensive cost effective documentation which establishes a form of standardization. Every multinational should have sound documentation so that all its activities can be harmonized irrespective the point of operation. One of the major problems of Lego Group was the supply chain. Proper planning is very vital for an organization which is operating in several nations. This planning should ensure control right away from the supply of raw materials, processing and even selling. The rise of dealership came as a solution to some these problems. Lego Group had established an S&OP (sales and operations planning). Each company should come up with its own plan of action that encompasses supply and production. Due to the new strategies lied by Lego, its financial situation improved day after day as shown in the exhibit in exhibit 2. Question (C) Lessons U.S. can learn from Indian and China systems USA is the strongest country, both politically and economically, in the world. Nevertheless, in the recent times, china is making bold steps to replace US from this prestigious position. India is also aligning itself in the same direction and what is left now is for US to draw valuable lessons from what these Asian countries are doing so that it can continue to remain at the top of the world. China can be viewed as opportunists. The Chinese and Indian investors have taken every opportunity of where America has failed (Khanna, p 368). For example, USA values quality. For this reason, most of its products across the world are qualitative and very expensive. For struggling economies which have very low standards of living like those in Africa and some parts of Asia, they cannot afford these products. China has gone an extra mile of creating product categories for different social class of people. A joke is shared often that when you go shopping in Shanghai, you do not mention quality, you just mention the amount of cash you have and you will be given a product worth your cash. This way China and India have been able to provide a solution to many struggling economies in Africa. If American firms can adopt a similar trend, then they can be in a good position to re-establish themselves afresh in the developing countries. The developing countries liaise only to countries which understand their situation and USA need understand this if at all it wants to remain influential economically worldwide. There is no time to brag of sophistication as China and India are taking their positions accordingly. Mass production is something china and India have in their production systems. Firstly, their leaders know that they have a large population to feed and provide healthcare to them. To achieve this, everybody must be fully involved into doing something. This is attained through large scale productions. Everything produced either in China and India has to be in large scale. Large scale level of activities brings in all the elements of economies of scale. The local market which lives on low standards can afford the locally manufactured products as costs are cut incredibly by the large scale production. In addition, the excess is easily exported to international markets at extremely competitive prices. The effects of this policy has enabled and made it possible for every shop in the developing economies of Africa and Asia to stock easily Chinese and Indian products. Adoption of this formula in American Production units can yield results in more easily because USA already has command and it only losses on cost. Indian and China exports are always cheap. Besides many factors which amount to it being cheap, their fiscal policies have aided much in keeping the exports extremely affordable to the rest of the world. China controls the value of exchange rate. A policy exists to ensure that the Yuan is always cheaper than the dollar. This effect translates into automatic expensive import and cheap exports. The local population in China and India cannot afford the imports brought into their country and hence end up buying much of what is being produced locally. Note that these two countries produce nearly everything a human being would need for survival and that consolidating the local market first is a big step. To the international market, the products of these two countries are always affordable. A puzzle is hence created for USA to crack out. America prides on its supremacy. Lowering the dollar value would have implications on all the economies of the world. The dollar is one of the most used currencies worldwide. But if this is the only way which is remaining to redeem the America economy back to its supremacy, then it will call for USA to bend its pride and make its exports cheaper by lowering the cost dollar. USA advocates for democracy worldwide. It has adopted this as its lifestyle. This has earned US great enemies. On the other hand China and India all they want is business. As long as their locally produced goods get market, they will trade with anybody. While USA capitalizes on sanctions and threat kind of relations, China and India offers themselves as the best alternatives. This friendliness has enticed many non-democratic nations to do business with these Asian superpowers. Most under-developed nations have gone the Chinese and Indian way. USA has to wake up to this reality. Fighting for democracy and political stability is good but for everything there has to be a limit. When over done unreasonably, the repercussions may be hard to cope with. Exhibit 1 Leading US Exports to China in 2011 Commodity Volume % change Power-Generation equipment 10.8 9.7 Oil Seeds and Oleaginous fruits 10.7 -3.1 Machinery & equipment (Electrical) 7.2 -16.6 Vehicles 6.4 55.6 Exhibit 2 Part of Financial Statement for Lego Group mDKK 2009 2008 2007 2006 2007 Income Statement Revenue 11,661 9,526 8,027 7,798 7,027 Expenses (8,659) (7,522) (6,556) (6,393) (6,605) Operating profit 3,002 2,002 1,471 1,405 423 Financial income and expenses (15) (248) (35) (44) (51) Profit before tax 2,887 1,852 1,414 1,290 329 Net profit 2,204 1,352 1,028 1,290 214 Worked Cited Khanna, Turan. Billion of Enterprenuers: How China and India are Reshaping their Futures and Yours. Cambridge: Harvard Business Review Press, 2011. Print Read More