Strategy and Transformation - Case Study Example

Strategy and Transformation [Type Here] Here] Here] [Type Here] Executive Summary In today's world markets are very dynamic and businesses are very complicated. Now companies need to establish themselves in the global market. To survive and grow in the current situations organizations have to make proper strategies, which in the long run can help them earn profit, help them grow and help them invest at the right thing at the right time. Strategies are made in line with the long term goals and objectives of an organization. They help the organization to get economical benefits. Properly defined strategies help companies make their universal selling proposition and help them maintain this advantage for a very long time. They make it difficult for other people to simply copy that advantage. If it's easy for everybody to copy that advantage it would no longer be an advantage. Two very successful strategies are the strategy of Joint Venture and the Strategy of Foreign Direct Investments. A joint venture means that two or more organizations form a contract or an agreement to dedicate their resources to work together for a common goal. When a company owns any productive assets such as a factory or land in a foreign country or shares of a company it is termed as Foreign Direct Investments (FDI). A FDI always returns all or some of its profit to the parent company. Sony Ericsson and General Motors are two companies who are using these strategies very well to their benefit. Table of Contents Table of Contents Table of Contents 4 "Joint ventures" By Jon G. Shepherd, Published by American Bar Association, 2007, 139 pages 6 Introduction In the competitive business industry today strategy making and its proper execution is very important. Strategy is the "game plan" an organization devices to achieve success. It is makes a path which the firm feels can earn them success it is followed. A strategy gives an organization economic growth by aligning its market position with its resources and capabilities. If the company is able to give its target market more value at a lower cost it becomes very productive and generates more economic growth. If the strategy helps the company to maintain that value advantage over a long period of time it ensures longer economic benefits.1 A strategy also gives an organization a structure for allocating resources, no company has unlimited resources, to utilize them properly there has to be a clear understanding of what is more important so that even the smallest of investment in the right thing results in a gain to the company. A strategy, if clearly understood at every level in an organization, helps the people of that company to stay focused on the goals and helps them in making better decisions for the company. Today companies built various strategies to help them grow and gain an edge over their competitors. Many companies today transform their organizations, through proper strategies, to obtain huge benefits from small changes and efforts.2 Joint Ventures and Foreign Direct investments are two types of strategies that are widely being used in the world today. These have proved very fruitful for certain organizations. Especially consumer good industry and technology industry has used it a lot. Joint Venture A joint venture means that two or more organizations form a contract or an agreement to dedicate their resources to work together for a common goal.3This generally happens when both the organizations think they can compliment each other and together produce greater results for a common goal. The corporations have seen many joint ventures. A big joint venture of today is Sony Ericsson. Sony Ericsson is a 50:50 joint venture formed between Sony, (a multinational conglomerate corporation) and Ericsson, (a provider of telecommunication and data communication) in October 2001 to work in the field of telecommunications.4 They joined hands to make mobile phones. Both were making mobile phones separately before the venture but did not have phenomenal success. In 2000 Sony had only a wafer thin share in the world market of mobile phones. Sony was having loses in making these phones but it wanted to grow in this field as it saw potential in it. Ericsson was the world number 3 in the mobile market in 2000 but due to problems related to its supplier Philips it was in a huge mess and Nokia was taking over its share. Mobile phones were a core product for this company and they did not want to sell this division. These two companies combined in a joint venture to make mobile phones together and to maximize their out put and profit. Ericsson had a lot of good experience in telecommunication and technology, and Sony was a very powerful brand in electronics. The early year of this merger was very turbulent and Ericsson was seeing a downfall in its market share, but in 2003 they decided to invest more money in this joint venture. They concentrated not on profits but more on technology.5 They wanted to create phones capable of digital photography and who had color screens. In 2003 the company started to fiercely focus the GSM market and it started making profit from this year. Sony Ericsson announced a sharp increase in their sales in the second quarter of the 2003. Net Sales for the quarter was Euro 1.125 Million. In 2004 Sony had increased its market share to 7 percent. In 2005 Sony Ericsson launched its phones with 2 megapixel camera and walkman phones which were able to play music up to 30 hours. It acquired a lot of technology. It also launched Phones with Cyber-Shot cameras starting from 2 mega pixel. Since then it has given the world's first 8 mega pixel in 2008 and it gave the world the first 12 megapixel camera in the start of 2009. In 2007 it sold 103.4 million units6 and in 2008 it sold 96.6 million units.7 In the third quarter of 2008 Sony Ericsson became the third largest phone manufacturer with 8.95 % market share for the first time. It was for a short period of time, but still it was an achievement.8 Recently there was news that because of recession the cell phone market has shrunk due and Ericsson may want to get out of this joint venture but it was later confirmed that nothing like this is happening.9 Today they are very stable, they have achieved the goals that they may not have achieved alone, if they were alone it was possible that both companies would have fallen out of world competition. They have a lot of great products they have made together, they have a good market share and they have better profits. They are hoping that their sales will immensely increase by 2010.It is always in competition and competing fiercely for the number 3 position. As the-Sony Ericsson President Dick Komiyama said in an interview "Sony Ericsson will continue to try to reduce its dependence for growth on the European high-end sector and develop its presence in new markets. This strategy will continue, and our objective remains to become a top-three player globally by 2011." This joint venture is clearly a story of success as both companies combined there technologies and together made themselves a global competitor of the mobile market. If this decision would not have been taken in the circumstances of 2001 it was possible that one or both of the companies would have had to opt out of the mobile phone business. SALES OF SONY ERICSSON Q1 2007 Q4 2007 Q1 2008 Q2 2008 Number of units shipped (million) 21.8 30.8 22.3 24.4 Sales (Euro m.) 2,925 3,771 2,702 2820 Gross Margin % 30.3% 31.8% 29.2% 23.1% Operating Income (Euro m.) 346 489 181 -2 Operating Income (%) 11.8% 13.0% 6.7% -0.1% Income Before Taxes (Euro m.) 362 501 193 8 Net income (Euro m.) 254 373 133 6 Average Sales Price (Euro) 134 123 121 116 Foreign Direct Investments: When a company owns any productive assets such as a factory or land in a foreign country or shares of a company it is termed as Foreign Direct Investments (FDI).10 A FDI always returns all or some of its profit to the parent company. A company that uses this concept of FDI is General Motors (GM); an American company.GM is the world's second largest auto maker of the world. It invests world wide using subsidiaries. One example of GM's FDI is General Motors India. It went to India in 1928 but later came back in 1954,11 it formed 50:50 joint venture with Hindustan motors in 1994 but later brought 100% share from the company and made it a wholly owned subsidiary in 1999.Some of the profit is reinvested and the rest is sent back home. This was done because GM realized that India is a densely populated country in which there is potential of good demand for passenger vehicles and small vehicles. This market can be easily captured by easily keeping facilities in India and assembling these vehicles in India. Instead of exporting cars to a country it is better to produce the cars in that so that additional costs are not incurred in any way. This kept GM close to a vast market and near its customers. It shifted it's headquarter to Gurgaon in 2000 and opened another facility in 2006 and a vehicle engine and transmission design and engineering in and a vehicle design studio in 2007. The construction of a second vehicle assembly plant was started in 2006 near Talagaon which started operating in 2008.12GM has planned itself very carefully in India, despite cultural differences it has been there for a while and has studied its customers very well. It has even well aligned its advertising, promotions and branding according to Indian Cultures.13 India also has cheap labor that provides good quality engineering and mechanical skills. This decreases the cost of production of cars.14India is also building its industry for developing parts, designs and engineering outsourcing sector. With this growth of technology and growth of the industry there is increased potential for future earnings in India. General Motors forecasts that by 2010 more than two million units of passenger vehicles will be in demand in India. Other than that from India exports can be made to other close by countries of the same characteristics. General Motors has done FDI in many countries like Indiana, Germany, Canada, Brazil, South Africa, Russia, Australia and Europe. It is very successful in all of it and maintains a very good position in the respective markets as well as the global market. To keep up with the global pace companies need to use these strategies effectively like General Motors. It is a race and competition is getting tougher and tougher day by day, one right decision can make a huge difference and one wrong decision can make the company disappear out of the market. Conclusion Sony Ericsson and General Motors have chosen strategies very well to suit themselves. Both companies have established a good name for them self and earn profits accordingly. Sony Ericsson made a wise decision in 2001 to combine their strengths when Sony had a wafer thin share in the market of mobile phones and Ericsson was in trouble because its supplier had delayed indefinitely and it needed to do something about it. If this timely decision was not taken it may have forced both these companies to vanish from the mobile phone industry. Today this joint venture is a fierce competitor and is striving to be the best. It still is not definitely in the top three but if it stays positive it will definitely be able to be in the top 3. General Motors uses Foreign Direct Investments very wisely. It tries to get a subsidiary wholly or partially in areas where its customer base is wide and it has a good market. This way it stays close to its market and learns about its demographics very well and gets to know the requirements of the market. It also makes sure that it advertises and promotes its products in line with the culture of its market. This helps them do a better job at selling their products to the local people and earn a better margin of profits. It strategies are used properly profits can be maximized and companies can do better investments and decision making. Reference List Gordon Walker, 2003, "Modern competitive strategy", Published by McGraw-Hill International,312 pages Ram Mynampati, "What Transformation Should Mean to You", Transformation Enablers Jon G. Shepherd, "Joint Ventures", 2007, Published by American Bar Association, 139 pages Andy Reinhardt, "Fast Breaks", 3 September 2001, Interactive Week, Mark, Sue, "Sony Ericsson Chief Stresses Innovation, Not Market Share", Wireless Week, October 2004 Sony Ericsson Info "http://www.sonyericsson.com/cws/corporate/press/pressreleases/pressreleasedetails/q42007financialpressreleases-20080116" "http://www.sonyericsson.com/cws/corporate/press/pressreleases/pressreleasedetails/pressreleaseq408-20090116" Carson, Phil, "Sony Ericsson: text and sub-text" 12 Feb 2007, RCR Wireless News Reuters, "Ericsson Still Committed to Sony Ericsson JV", 20 March 2009, the Wall Street Journal Foreign Direct Investment Defined at www.oecd.org/dataoecd/10/16/2090148.pdf Reuters, "Asia; India: Second G.M. Plant to Open", the New York Times, Published: August 5, 2008 Levey, J. David, "Firms Can Flourish under Foreign Owner", Crain's Cleveland Business, 8 October 2001 David Faulkner, 2005, "Oxford Handbook of Strategy" Kenneth Froot, 1993, "Foreign Direct Investment", 297 pages Imad A. Moosa, 2003, "Foreign Direct Investments: theory, evidence and practice" 311 pages General Practice Section, Committee on Continuing Legal Education, New York State Bar Association, Division of Professional Education , 1986, "A Modern Way of Business Expansion" Read More