Corporate and Global Strategy - Term Paper Example

343282 - Corporate and global strategy Introduction: This assignment consists of two sections. Section A of the paper seeks to answer assignment questions related to General Motors which requires and to carry out extensive research into the company from the company websites and from other sources such as newspapers, article, trade journals and associations. Section B is based on the residential to Prague, Czech Republic in March 2007, where three themes were chosen to reflect what things were learned from experience and with application of theory covered on the module to in the Czech Republic. The three themes chosen are: (1) MNE and FDI activity in the Czech Republic (2) Internationalization paths: triggers , methods and strategies of Czech MNEs’ and (3) National Competitive advantage of the Czech Republic. Section A 2. Analysis and Discussion: 2.1 Identify and evaluate internal and external internationalisation triggers and methods used by GM at different stages. (30 marks) The internationalization path taken by the General Motors in their entry of key overseas markets are not much different as those other players in the global automotive industry. The path is where it will lead the company to attain further economies of scale (Gottinger, 2003; Thorson and Moore, 1996) and further reducing costs while improving its aiming to regain its profitability. The internal triggers include the very cost of production in the US where the company had to lay off thousands of its employees due to its inability to sustain profitability as compared to its competitors particularly the Japanese car makers namely Toyota and Honda which has penetrated the US Market. The external triggers include the mergers that had happened earlier in the global automotive industry particularly that of Daimler and Chrysler where the merger would have to attain the 4 million-units mark in order to survive the competition in the industry. Trumbull, Mark (2006) which recognized the ailing situation of General Motors (2007) reported about an exploratory deal with France's Renault and Japan's Nissan.” He opined that the GM “stands at the brink of a make-or-break choice: whether its extreme corporate makeover is best managed from within or with foreign help.” He added that the consideration of this global plan to internationalize is “designed to save costs and thus help GM return to profitability” which came from the urging of GM's largest shareholder, who is reportedly not happy with the speed of change under the present management. It is clear therefore from the foregoing that what triggers the proposed alliance among the bog car manufacturing is the synergy (Mullen and Lick,1999) that would be created in the alliance thereby enhancing further cost control or improving economies of scale (Trumbull, Mark, 2006). From the point of view of GM, Trumbull (2006) believed that the alliance is not meant to attain to have global dealership presence since the company has already major brands on the market from different parts of the world include Beijing, China, Berlin, Germany and Mexico City. The trigger was mainly “about reaping global efficiencies in production and product development.” (Trumbull, Mark, 2006) As the company was in an ailing position, the strategy (Bird and Beechler ,1995; Raghuram and Arvey ,1994) sounded like restructuring strategy to allow the company to reduce its big labour cost. The company posted stunning losses of $10.6 billion in 2005 and while it remained the world's largest automaker as of the same year there is a great chance that Toyota could soon claim that same title given the current development in the industry (Trumbull, 2006) Trumbull (2006) also reported that the management under Wagoner has already planned a difficult downsizing of US operations, by recently encouraging 35,000 union workers into buyouts to pave the way for plant closings. A major GM shareholder named Tracinda Corp., owned by billionaire Kirk Kerkorian, according to Trumbull (2006) had expressed belief that participating in a global partnership-alliance with Renault and Nissan could enable the company (General Motors) to realize significant synergies and cost savings. As for the external triggers to internationalization of GM, Trumbull (2006) reported to include: “high labour costs, low reliability ratings compared with Japanese rivals, and a sprawling array of brands to manage.” One could easily notice the big pressure coming from outside competitors particularly those coming from Japan, which had long penetrated not only the US markets but the whole world. 2. 2 What were the main benefits of internationalization to GM at each stage of their international development? (20 marks) The main benefits of internationalization at each stage of their international development include reduced cost, better flexibility in responding to the market because of changing technology. Internationalization in the form of alliances however had not all resulted for players to be sure-fire winners in the past. What is worth noting in the case of General Motors was its decision to get out of a partnership with Italy's Fiat in 2005 (Wikipedia, 2007). In addition General Motors, Ford, and DaimlerChrysler have also found that outright mergers or buyouts have also been challenging and were not that easy. (Trumbull, 2006). There is however evidence to say that over time, alliances assured greater contribution and pooling of development costs for new technologies in the sense that said alliances resulted to expansion in the practice of building wide-ranging car models above a common platform, which would permit different vehicles to use similar architecture. (Trumbull, 2006). The case of the less than ten year old Renault-Nissan alliance was cited as evidence that already helped Renault and Nissan to cut costs, as these two car manufacturers were able rely more on common components that had allowed them to make more efficient both their product development and factory assembly and which necessarily created noticeable enormous efficiencies. From General Motor's view, the alliance would not mean being about "going global" in terms of expanding of dealership presence since it could be accepted that the company already has major brands on the market from different parts of the world which Beijing, China and Berlin, Germany and to Mexico City, Mexico. The alliance was therefore more about bringing in comprehensive efficiencies in production and product development (Trumbull, 2006) 2.3 Which of Barlett and Ghoshal’ four typologies best describes the strategic position adopted by GM? Has this changed over time? (10 marks) Answering this question needs the one bring out first what are the four typologies? Boyd and Begley, (2000) made mentioned about the abundance of academic literature that reconciles these challenging pressures for local conformity and global consistency. Hence, they posited that various typologies have been designed to assist MNEs in their effort to define and determine the proper balance between the importances of external influences managerial predisposition. Barlett and Ghoshal (1989) supplied an extract of four MNC "mentalities" or typologies that considered these distinctions pertaining to strategic inclination. The first one is the international mentality which views overseas affiliates as adjuncts to the core domestic operation, thus eschewing the notion of both local responsiveness and global integration. Barlett and Ghoshal (1989) gave the second typology to call the multinational mentality which apportions a premium on responsiveness and considers overseas operations to be a combination of independent businesses. One could just see the difference between the first and second there the first considers only as addition foreign operation to domestic operation while the second sees the strength of being independently powerful units. From these the same authors gave the third typology to be referring to the global mentality, which is more categorized by a desire for planned stability and competent production. Thus, Barlett and Ghoshal (1989) explained that in substance, this third approach aims the whole world rather than national markets, regarding overseas operations as delivery channels that have a say to the greater good of a global market. (Boyd and Begley, 2000). The last typology according to Barlett and Ghoshal (1989) is the transnational mentality which admits the underlying principle for global combination as well as local responsiveness. This final view fits in both steadiness and customization as important points, thus consenting to coordinated economies of scale as well as local responsiveness. (Boyd and Begley, 2000). It is submitted that GM adoption of strategy is closest. The international mentality as it “regards overseas affiliates as appendages to the core domestic operation, thus eschewing the notion of both local responsiveness and global integration.” This strategy is proved by the fact that its main operation is still the home country, the US where it continues to spend most of its labour cost. It’s having a stake and Suzuki and Fiat and latter selling part of its stake also confirmed this mentality of the company that foreign operations as mere adjuncts to the core domestic operation. Section B Reflection on chosen themes and with application of theory covered on the module to your experiences in the Czech Republic. What were learnt from the experience? First Chosen Topic: MNE and FDI activity in Czech Republic Doing business in Czech Republic requires adoption of different strategies by understanding the environment under which the company should operate. Akbar, Y (2005) reported that in recent years and as full accession to the EU comes, there is evidence to suggest that the prospects for FDI in countries in the CEE region are changing. This is for several reasons. The first reason is the reality that the privatization pool available to MNEs has dried up since most of the Accession-8 (Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Slovakia, and Slovenia) has sold their state-owned enterprises. This drying up would put a limit to activities of MNE’s. Much as they want to do more the companies must realize the limitations provided by these developments. See Appendix A for the Extent of privatizations in Czech Republic. The effect of these privatizations are not only economic, but they also have their social impacts. See Appendix B for the social impact of privatization in Czech Republic. Secondly, Akbar, Y (2005) noted that the relative cost-advantage presented by these countries has been worn as salaries of workers, cost of capital and real estate have raised in line with increased aggregate demand and the improvement of their macro economies. Cited as example were the cases of the cities such as Prague and Budapest which are believed to now have cost of living being roughly equivalent to neighbouring cities such as Vienna. Thirdly, European Union membership has the meaning of improved regulatory controls that are commencing to increase costs to companies if they are to comply with recent regulations required by EU membership (Akbar, 2005). The fourth reason is the fact the freedom of movement of persons, in a limited sense, within the EU will permit many citizens from the Accession-8 to locate higher paid work in the existing member states thus dropping the pool of skilled labour that could be found in Eastern Europe region (Akbar, 2005). Second Chosen Topic: Internationalization paths: triggers, methods and strategies of Czech MNEs’ This could be best answered by looking at the strategies of MNE in Czech. In discussing what motivates these MNEs, Meyer, K. (2000) reported that a number of MNEs bearing in mind entry anticipate considerable long-term growth of demand, especially as the income of the middle class whom they targets as their prime customers, breeds faster than the average in economic terms and some of these features are as follows: First, consumers in the CEE had the experience of little or no access to consumer goods and brands existing in other countries at related levels of per capita income. Trade liberalization allowed running free a catch-up demand, particularly for consumer durables for which West European markets are flooded. The high status of goods coming from the West was in part attributable to the Western media penetration, even before 1989 and it was continued through effective advertising and brand-building in the newly relaxed local media (Meyer, 2000) (Paraphrasing made). Second, entry in CEE may be a strategic move by MNEs to sustain or enhance their global strategic position. Global leaders may invest to prevent challenges from their rivals or the emergence of new competitors from within the region. Firms dominated by a larger competitor may see early entry in new markets as an opportunity to gain competitive advantages. MNEs established in both Western and Eastern Europe may have superior opportunities to exploit price discrimination, product differentiation or vertical integration. In industries with major network externalities, such as consultancy and financial services, presence in the region may be necessary to offer global coverage for their globally operating customers (Meyer, 2000) (Paraphrasing made). Meyer, K., (2000) noted that the third feature include the observed phenomena that several underdeveloped sectors of industry are being re-established to increase speed of productivity growth across the economy. Hence this brought the governments in CEE to invite foreign investors to upgrade telecommunications, power-generation and distribution, and transportation infrastructure. Meyer, K.,(2000) added that the privatization of utilities, particularly in the telecommunications sector, had attracted considerable FDI capital inflows and that the infrastructure development produced more opportunities for those companies that are supplying and these include the construction firms, turnkey- plant engineers, and manufacturers of telecommunications equipment. (Paraphrasing made). Please See Appendix C for FDI movements at Czech Republic. Third Chosen Topic: National Competitive advantage of the Czech Republic Scientific American Special Advertising Section, (n.d.) describe the excellent education system to be its national competitive advantage. It praised the Czech Republic's most excellent natural resource which has been, and will continue to be, the intellectual capital of the country's skilled and well-educated people. In management of corporations could be the best sources of competitive advantages against their competitors. If one takes a whole nation or one country as an organization the same type of resource, that is people, could also the best source of competitive advantage. A competitive advantage will help a country to attain better growth in its economy as against competitors with Eastern Europe to perform better in the economy. See Appendix D for economic growths at Czech Republic for recent years . Scientific American Special Advertising Section, (n.d.) explained that the excellent natural resource coming from country's skilled and well-educated people supports in “satisfying the needs of knowledge-based and innovation-driven businesses.” The present level of technology further put more players in the knowledge based economy of the whole world where knowing more has become a better ingredient of success than any other resource. The education systems of the country was noted to “have been designed to support the changing dynamics of industry, and it is thus not surprising that the country's student population has one of the highest science and engineering ratios in the world.” (Scientific American Special Advertising Section, n.d.) As proof of these the Czech Republic had a number of the oldest and biggest technical universities in Europe. This included the Czech Technical University (CVUT) in Prague, which has been existing since dates back 1707 and at present the school has more than twenty three thousand (23,000) students. Students found in the technical universities in Brno and Ostrava in Czech were noted to have exceeded that the fifteen-thousand- student mark. Nevertheless, reports had that the strength of Czech technical education was found in the secondary schools as around 90% of the Czech population was reported to have finished at least upper secondary education. As far as the system of vocational training centres and secondary technical schools are concerned, the same could also be said to be well developed and in fact this system has great emphasis on practical training in workshops and cooperating companies. . (Scientific American Special Advertising Section, n.d.) (Paraphrasing made). Conclusion: This paper found in Section A that General Motor internationalization strategies to enter the global has similarities with what is happening in the some of the firms of the industry, that is basically establishing strategic alliance with other foreign car manufacturers like the alliance it entered into with Suzuki of Japan and Fiat of Italy. With it its recent financial problems in recent years which necessitated the company to reduce its employees by about 35,000 has really put the company’s financial resources in a not so good situation. Its attempt to have alliance with France Renault and Japan’s Nissan was called off in 2006 due some conflicts that could not be resolved. Although the company has suffered losses in recent year of about $10 billion losses the company is still number in terms of number of cars sold. Toyota is fast overtaking however the company’ production and sales efforts. As for my reflection on the reflection paper on the theme MNE and FDI activity in the Czech Republic, it could be said that doing business in Czech Republic requires adoption of different strategies by understanding the environment under which the company should operate and an example of such reality that the privatization pool available to MNEs has dried up in Czech Republic. In the theme: Internationalization paths: triggers, methods and strategies of Czech MNEs’, what could be learned was that MNEs anticipated considerable long-term growth of demand, especially as the income of the middle class whom they targets as their prime customers, breeds faster than the average in economic terms. Finally for the theme: National Competitive advantage of the Czech Republic, what could be learned was the country has the excellent education system to be its national competitive advantage causing to produce skilled and well-educated people. Appendices: Appendix A - Extent of privatizations in Czech Republic, (See Last Pages) 1. Appendix B -The Social Impact Of Privatization In Czech Republicn (See Last Pages) 2. Appendix C - FDI movements at Czech Republic, (See Last Pages) 3. Appendix D - Economic Growths At Czech Republic For Recent Years, (See Last Pages) Bibliography: 1. Akbar, Y (2005) Shifting Competitiveness, Evolving MNE Strategies and EU Enlargement: The Case of Hungary, Jean Monnet/Robert Schuman Paper Series Vol.5 No. 22, {www document} URL http://www.miami.edu/eucenter/akbarfinal.pdf. Accessed May 14, 2007 2. Boyd and Begley, (2000) Incorporating Worldwide Input into Human Resource Decision Making in High Technology Companies. {Www document} URL http://www.accessmylibrary.com/coms2/summary_0286-28316869_ITM, Accessed May 14, 2007 3. General Motors (2007) Company Website, {www document} URL http://en.wikipedia.org/wiki/General_motors,Accessed May 14, 2007 4. Meyer, K. (2000) Working Paper No. 32, International Business Research on Transition Economies, Center for East European Studies, Copenhagen Business School, {www document} URL http://ep.lib.cbs.dk/download/ISBN/x656018185.pdf., Accessed May 14, 2007 5. Scientific American Special Advertising Section (n.d.) Czech Republic European Center of Innovation, {www document} URL, http://www.sciam.com/czech/2.cfm, Czech Republic European Center of Innovation,     Accessed May 14, 2007 6. Trumbull, (2006) to ally or not to ally: That is GM's question, {www document} URL http://www.csmonitor.com/2006/0710/p03s03-usec.html, Accessed May 14, 2007 7. Wikipedia (2007), General Motors, {www document} URLhttp://en.wikipedia.org/wiki/General_motors,Accessed May 14, 2007 8. Konechy, Thomas, (2007) Transformation and the Process of Privatization: Macroeconomic 9. Habarta, P (2007) Attracting Sustainable FDI and Building Knowledge-based Economy, CzechInvest 10. Hrncir, M. (2007) Czech Economy, Macroeconomic Trneds, Competiveness and Comparative Advantages , Standford University 11. Bird and Beechler (1995) ; Links between Business Strategy and Human Resource Management Strategy in U.S.-Based Japanese Subsidiaries: An Empirical Investigation;Journal of International Business Studies, Vol. 26, 1995 12. Raghuram and Arvey (1994) Business Strategy Links with Staffing and Training Practices ; Human Resource Planning, Vol. 17, 1994 13. Gottinger (2003) Economies of Network Industries; Routledge 14. Thorson and Moore (1996) Integrated Communication: Synergy of Persuasive Voices ; Lawrence Erlbaum Associates, 1996 15. Mullen and Lick (1999) New Directions in Mentoring: Creating a Culture of Synergy; Falmer Press Appendix A - Extent of privatizations in Czech Republic; Source: Konechy, Thomas, (2007) Transformation and the Process of Privatization: Macroeconomic Appendix B -The Social Impact Of Privatization In Czech Republic, see last part, Source: Konechy, Thomas, (2007) Transformation and the Process of Privatization: Macroeconomic Appendix C - FDI movements at Czech Republic; source: Habarta, P (2007) Attracting Sustainable FDI and Building Knowledge-based Economy, CzechInvest Appendix D - Economic Growths At Czech Republic For Recent Years, Source : Hrncir, M. (2007) Czech Economy, Macroeconomic Trneds, Competiveness and Comparative Advantages , Standford University Read More