How Foreign Companies Operate and Plan to Grow Their Business Globally - Rolls-Royce - Case Study Example

How foreign companies operate and plan to grow their business globally Introduction A number of companies have their operations across the world. These multinationals enjoy the benefits of large economies of scale. They have specific approaches for their large markets and employ different operation strategies. This study will use Rolls-Royce Group to assess how the multinational companies operate. Rolls-Royce Limited was established in 1906 by Charles Rolls and Henry Royce. It was privatized in 1987 to become Rolls-Royce plc. (Rolls-Royce Limited, 2010). In 2003 it became a holding company with the present name, Rolls-Royce Group. It has its headquarters in Westminster London, England. It deals in manufacturing and servicing civil and military aircraft engines, marine propulsion systems and power generating equipment. The main purpose of this study is to provide an analysis of how the multinational companies operate as well as how they set strategies for future growth. Overall company’s strategy for growth In pursuit of its goal of providing word-class technologies and services, the Rolls-Royce Company’s management has five key elements that it focuses on. The first one involves addressing its four global markets: civil and defense aerospace, energy and marine divisions. The management is focused on meeting the increasing demand for its products in the four major segments. Secondly, the management is willing to invest in capability, technology and infrastructure it its production business. For instance, it invests over £900 million in research and development every year (Rolls-Royce, 2012). In the third place, it focuses in developing a portfolio of competitive products and services so as to remain highly competitive in the market. The fourth strategy is to grow its market share as well as its installed products base. For example, the company has pursued the goal of establishing strategic acquisitions which widens its avenues for product development and access to various market segments and geographies. Lastly, the management wishes to continue adding value for its customers providing product-related services. High ethical standards, strong commitment and simple and efficient operations are also applied to ensure customer satisfaction, innovation and growth (Rolls-Royce, 2012). Company’s competitive advantage Rolls-Royce gains its competitive advantage from its dedicated in-house research and development team which creates high-value intellectual property. This ensures the company’s global competitiveness by creating heavy barriers for entry to its markets in all its segments. It also gains this advantage from its civil aerospace market. This market is budget oriented and requires huge capital investment in advanced technology and research and development. Since the Rolls-Royce has heavily invested in research and development, it has managed to dominate this market. This single manufacturer domination in this area is deemed very difficult and makes the company stand out as very competitive. Lastly, the company has changed its orientation from core engineering to customer concerned business. This includes customer awareness and customer service focus with quick decision making. This ensures that the customers continue buying from them since their needs are well taken care of. Organization of the company Rolls-Royce Group has its headquarters at Westminster, in London, United Kingdom. The management uses a hierarchical structure to manage the company. It is organized in four major divisions operating in over 50 different countries that provide very sophisticated products. The first one is the Civil Aerospace which is used in the manufacturing, developing, marketing and selling commercial aero engines which include the engines for small and large aircrafts for airlines as well as corporate customers. It specifically deals in production of fan, compressor, combustion, turbine and control systems. It is said to provide power for over thirty types of commercial aircrafts in the world. It accounts for the 49 per cent proportion of the company and has main operational locations in Virginia (US), Indianapolis (US), Singapore, Dahelwitz (Germany) and Derby (UK). Secondly, the company has the Defense Aerospace division which is involved in developing, manufacturing, marketing and selling of military aero engines for helicopters, trainers, unnamed aero vehicles, helicopters, combat jets and tactical aircrafts. It holds 20 per cent of the company’s operations. It has 160 customers in more than 100 countries. It has main operational locations in Bristol (UK), Virginia (US), Indianapolis (US) and Dahelwitz (Germany). In the third place, there is the Marine division which develops, manufactures, markets and sells marine-power propulsion systems. This division has products like bearings and seals, electrical power systems, automation and control, stabilization and maneuvering systems and complex systems for offshore oil and gas and submarine vessels (The Economist, 2005). It serves customers who are interested in commercial and naval marines. It has installed and services equipment in more than 30,000 vessels among them 70 navies. It operates in Singapore, Bristol, Derby (UK), Rauma (Finland), Norway, Sweden, Hamburg (Germany), Shangai (China), Pusan (Korea), Vung Tau City (Vetnam) and Walpole (US). Lastly, there is the Energy division which is responsible for constructing, installing and selling gas turbines and diesel engines. It provides power systems for gas and oil industries through 35 pipelines in 24 countries. This division also provides electrical power generation and is working on civil nuclear power market. It has its operations in Montreal (Canada), Mount Vernon (US) and Bergen (Norway). All these divisions offer aftermarket services. The figure below shows the Rolls-Royce organizational structure. Rolls-Royce organizational structure Source: Rolls-Royce The above mentioned divisions operate under a structure headed by the chairman, board of directors, group of executives, board of management and a group of general management. The main departments within the group are the administration, business, customer service, network development, production services, research and development, finance and human resources department. Company’s major products or services The major products of Rolls-Royce Group include manufacture and repair of aircraft of aerospace engines, manufacture and repair of commercial and military gas turbines, construction and installation of gas and oil power generation systems. Marketing plans or efforts Rolls-Royce Company has made the various efforts of applying market segmentation strategy, differentiation strategy and focus strategy in its sectors. For example, in the market segmentation strategy the Aerospace division has two market sectors. The first one deals in selling brand new aircraft engines to aviation and leading manufacturer airbus industries among others. It creates the opportunity to the second market. The second market is involved in selling spare parts to the old purchased engines. It also provides aftermarket services as well as maintenance to its customers. In differentiation strategy, the company has applied product differentiation in aero engines by producing strong brand names and different engines like 737, 777, 747, and 787 for Boeing and Airbus (Hooley& Piercy, 2004). Personnel differentiation has also been applied by hiring and training better staff than their competitors. In focus strategy, the company has focused on consumer satisfaction by establishing customer care centers around the world. It has also worked hard on product features’ focus by ensuring that their engines are of the highest quality and technology. This is so especially in turbo-propeller engine, turbo-jet engine and fuel systems fitted with an electronic E.R.P system and a thrust reverser. Major competitors The company’s major competitors in the aero-engine sector are the General Electric and the Pratt & Whitney from the United States of America. Pratt and Whitney is an aerospace manufacturing company. It is based in United States and has global service operations. It deals in the production of aircraft engine, gas turbines and spacecraft propulsion which are the markets for the Rolls-Royce sectors. General Electrical (GE) is a multinational corporation with headquarters in the United States. It has four divisions namely energy, infrastructure, technology and financial services. The three companies compete in the same market and each one of them has a market share. Selling or distributing products and services Rolls-Royce Group uses exclusive distribution to ensure that their goods are available for purchase. This is where it enters into an exclusive agreement with its distributors. Exclusive agreement is a type of an agreement that makes a person the sole agent for selling a certain product within a specific geographical area. For example, the Rolls-Royce signed an exclusive distribution agreement with AAR in 2009 to expand the aftermarket supply market for its RR300 parts as well as services. Aviall was also given exclusive rights to distribute Rolls-Royce RB211-524 engine spare parts in 2010. This type of distribution allows a limited number of dealers to have the special right to distribute the products of the company. They then establish contacts with the buyer to make sure that the relevant services are offered to the customer when the need arises. What is new in thinking, new products or services to meet any changing market conditions? The company has set a goal of decreasing its costs of operations by applying lean. This will enable them to reduce their prices for their products and therefore reduce competition. The video conferencing is reducing air transport needs. This market condition needs to be thought about. By reducing the cost in transport, people will find it worthwhile to travel. Greatest challenges that the Rolls-Royce will face in the next 3-5 years As a matter of fact, every business entity is faced with challenges. These challenges can be within the business or from outside the business. The goal of a company is to identify them and make efforts of overcoming them or minimizing the risks associated with them. In Rolls-Royce, one of the greatest challenges is the pursuit of the company’s goal of increasing the margins of their products through supply chain and manufacturing costs reduction. This remains as a challenge as the years progresses due to increasing prices of raw materials due to inflationary price pressures. This challenge is not from within the company and therefore will have to be addressed in a different way since it cannot be fully overcome. Another challenge is the emergence of cases where some business employees bribe middlemen in order to win contracts. This move would eventually decrease its competitiveness thus lowering its sales in future. Another challenge within the firm is failure to conform to quality procedures to quality procedures and plant cultures by the workers. This is a serious problem and any negative outcome related to it causes a great loss to the company in terms of repairs done to the damaged parts and loss of customers’ confidence with the company. Reduction of government expenditure caused by global financial uncertainty and budget constraints in the US and Europe can reduce revenues thereby slowing down the growth of the company. Unfavorable fluctuations of currencies exchange rates will affect operations and financial transactions. Successes in the past several years Generally, the underlying profits of Rolls-Royce Group have continued to increase for ten consecutive years. For example, in 2012 there was an increase of four per cent in the order book. This made the revenues to increase by eight per cent which in turn lead to a twenty four per cent increase in the underlying profits (Rolls-Royce, 2012). This was fuelled by various projects that were accomplished. Among them, there was a new engine test and assembly facility that was opened in Singapore in 2012. This facility is said to be producing Trent 900 engines. The company also expanded its facility in Virginia, United States of America which enhanced production of nozzle guide vanes and turbine blades. The company brought together its Defense and Civil businesses to create a single Aerospace division. The division is now operating with an integrated supply chain (Rolls-Royce, 2012). The company expanded its new service center network by opening new facilities in China in 2012. It also introduced a global spare parts distribution network. In the same year, 2012, 24/7 service desks were introduced to improve customer responsiveness and delivery. The company also went ahead and started a state-of-the-art technology and training center. Rolls-Royce added strength to its customer base and market position in Italy by acquiring the European Microfusioni Aerospaziali. This is the company which used to build precision micro-castings for aero engines. The company managed to certify an engine (Trent XWB) that will be used to power the A350 XWB Airbus. It also managed to deliver gas turbine power and propulsion equipment for the United States Navy Combat Ship and to United Kingdom for the Queen Elizabeth class aircraft carriers (Rolls-Royce, 2012). The company won a five-year contract worth $138 million to support Petrobras’ oil production activities in Brazil in 2013. Its energy division secured a further $28 million contract to supply PetroChina with equipment and services to expand its flow of natural gas. The same division was granted a contract by Abu Dhabi Marine Operating Company to supply power generation equipment and offer related services to enhance gas and oil production in the United Arab Emirates. The company’s approach to the S.A market in future The company plans to enter to the S.A market by differentiating its products to fit the different needs of the market. This is because it seems subdued. Conclusion The main purpose of this paper was to assess and create an understanding of how multinational companies carry out their operations. I used the Rolls-Royce Group to develop the analysis. The study found that the company has well established growth strategy which has five elements where among of them is to invest heavily in technology through research and development and develop globally competitive portfolio of products and services. Provision of excellent customer services is also central to the companies’ growth. Distribution of this company’s products is through exclusive agreement since they are high valued. The company has reduced its major competitors to only two by establishing strategic acquisitions across the world with operations taking place in over 50 different countries. The study went ahead to investigate the greatest challenges facing these multinationals and found that, increasing prices of raw materials due to inflationary pressures will pose a great challenge to these companies. Finally, the company has been found to have massive achievements in securing handsome contracts around the world thereby making consistent profits over a period of ten years. Bibliography Hooley, S., & Piercy, C. (2004). Product Differentation and Competitive Advantage. 25 (2), 116-118. Rolls-Royce Limited (2010). History: Beginning [online].United Kingdom: Westhampnett, Chichester. Available from: http://www.rolls-roycemotorcars.com/#/the_company/history/the_beginning/[Accessed 26th February 2014]. Rolls-Royce Holdings plc. (2012). 2012 Annual Report. Retrieved from http://www.rolls-royce.com. (Accessed on 26th February 2014) Rolls-Royce Holdings plc. (2011). 2011 Annual Report. Retrieved from http://www.rolls-royce.com. (Accessed on 26th February 2014) Read More