Global Management: analysis of the ABB PBS Joint Venture Operation - Case Study Example

Introduction This project undertakes a case analysis of the ABB PBS Joint Venture Operation. The project would conduct a critical review of the value chain of the joint venture after taking time to document and examine it critically. The paper would examine the pointers within the value chain of the venture and also try to identify the issues and problems in the value chain as identified by the study. Finally, the research would conclude on formulating recommendations on how to improve the value chain of AAB PBS. The value chain analysis would involve documentation of the current position of the company's value chain. This would include drawing up the value chain. The critique would involve the issues and downsides of the value chain and come up with clear recommendations on how this can be improved for the betterment of ABB-PBS. Value Chain The activities of ABB-PBS came into being after a merger between ABB, larger entity, and PBS, which is a local Czech company that is emerging from the era of Communism. PBS provided power generation with engineering, and manufacturing capability while ABB made some cash injections and provided specific technology. The investment of ABB and PBS was 66% and 33% respectively. The value chain of the current ABB-PBS entity still has relationships with the two parent companies. The company is to acquire its steel and other raw materials from channels used by PBS. Manufacturing is to be done with PBS's old manufacturing streams and plants. There are external services like repairs and upgrades. Internal services include maintenance and other routine supervision and checks. There is also an administrative service that is carried out by the centralized unit of human resource management, finance, and quality control and information systems. Sales are done through the regional network outlets and through ABB, which has an international outlook for the manufacturing and sale of ABB products. The activity diagram of ABB-PBS is displayed below: Figure 1: Basic Diagram of Operations and Activities of ABB-PBS Bamford and West (2010) identify that the first step in value chain analysis is the identification of value activities. From Figure 1 above, the Value Chain of ABB-PBS can be deduced, and this can be done by placing them under the respective units of the company and its operations. Figure 2: Value Chain of ABB-PBS The core function of ABB-PBS is to acquire steel from the market through the old channels of PBS. The idea is to cut down costs but ensure there is quality. Once the steel is acquired, it is sent to the plants of ABB-PBS. The engineers gather them and process it to the desired deliverable. This deliverable goes through processes according to required standards and expectations. When the products are done, they are sent out to customers of the company through haulage services. This is mainly done through the distribution of parts of every product or service. Finally, this gets to the warehouse of the consumers, and they use it. Marketing and sales are conducted through the old PBB network for consumers in the former Soviet Union and Eastern Europe. Sales in Western Europe and the rest of the world are done through the ABB network. There are support services that assist in the operations; this includes the internal services like maintenance and external services like upgrades to systems and structures. This form the core value chain of ABB-PBS. The support services offered include the administrative functions and the managerial function, which complement the original strategy and plans of the people charged with governance. They include Activity Function Human Resources Responsible for recruitment, selection, employee administration, motivation and lay-offs Finance Carries out accounting services and financial planning and forecasting. Quality Control Ensures that standards of the company are met in full. Management Information System Responsible for gathering and processing of information for the company. Analysis of AAB-PBS Value Chain Value chain analysis is conducted with the view of strengthening a firm's strategic position (Hansen and Mowen, 2009: Powell, 2011). “Value chain analysis is used to identify a company's potential sources of economic advantage and achieve an optimal allocation of resources” (Bensoussan and Fleisher, 2012). Value chain analysis allows a manager to compare a firm's capabilities with its obligations (Peng, 2009). A standard value chain analysis needs to have the following elements: 1. Market Analysis 2. Stakeholder Analysis 3. Opportunities for Value Chain 4. Strategic and Action Plan (Mayoux, 2005). Improvement can be attained through several methods and systems including benchmarking where problem areas are identified and compared to some successful entities in the industry (Sekhar, 2011). In literal terms, the longer the value chain, the more a firm would spend on its activities and the cost of production would be high. This would mean that there would be a relatively high price of their products in order to acquire a respectable profit. The in-bound logistics are acquired from markets in the former Soviet Union. There is a possibility that the steel they use could be sourced from a cheaper part of the world. This could include looking at nations like India for less expensive sources of steel to carry out their activities. However, this would require a lot of comparative analysis to ensure that everything is in the right level. The operations of ABB-PBS is done according to a fairly old and archaic technology. Due to it, the company cannot compete with their former employees who have gone into the retrofitting industry. The company would have to improve its technology and this could significantly cut down costs. This is because the current technology does not seem so efficient. The kind of logistics sales is also an issue. Being a company that has its roots in the former Soviet Union, it is very apparent that the ordering system of local customers is not influenced by information and communication technology. This is because the company uses the old method. Thus, production is done and there is the possibility of a high volume of stock that remains uncleared. Also, there is the possibility that the linkage between the buyers and ABB-PBS is not done through real time. This means that the company would have to produce and store their products as they wait for customers. This could be eliminated and costs reduced significantly if just-in-time methods are in vogue. Support services are provided in-house. Due to this, ABB-PBS would have to pay employees. As stated in the case, most of the workers in the company believe in being paid for just 'showing up'. This means that the company might be paying these people although their contribution might be negligible. An alternative might be to outsource this function and ensure that the work is done by third parties who might be more productive. Recommendations From the position of the value chain of ABB-PBS, the company would need to improve the way it conducts business. The company must find new niches in the international community and expand its export activities. This is because the fall of neighbouring lands in the Soviet Union means that the economy is not so sustainable anymore. Thus, the company must find new niches overseas. This way, they can maintain a healthy financial position. ABB-PBS needs to improve its technology base. This is because the company has a limited technology which makes it vulnerable to competitors. It would be better off if it sets out to get stronger and more efficient technology which would make its earnings go higher than it is now. ABB-PBS needs to use technology to enhance a just-in-time ordering system. This would meant that they would maintain a stronger relationship with their customers and the customers can ask for timely needs to be met from time to time. This would reduce slack and the unnecessary lock up of capital which might affect the value chain. Cooperation is necessary for the different units to increase synergy. This is because the different units of the company would have to work together as a single unit if there is the hope of getting the best results. Hence, there is the need for cooperation and connection with different units. Outsourcing seems to be an important element that can boost the company's performance and improve the value chain. This is because keeping in-house staff seem to be problematic on the grounds that most of these workers are not very productive. So to cut down the value chain's cost, it might be necessary to lay off a number of employees and pay a smaller percentage to external entities to provide the same services where necessary. Unproductive businesses must be re-examined and possibly abandoned. The boiler business for instance is posing a major economic problem to the company. They might have to examine it and try to find a more profitable line of business to concentrate on. References Bamford, C. E. and West, G. P. (2010) Strategic Management Mason, OH: Cengage Bensoussan, B. E. and Fleisher, C. S. (2012) Analysis without Paralysis London: FT Press. Hansen, D. R. and Mowen, M. M. (2009) Cost Management: Accounting and Control Mason, OH: Cengage. Mayoux, F. (2005) Value Chain Analysis New York: Searchlight Publishing. Peng, M. W. (2009) Global Business Mason, OH: Cengage Powell, B. (2010) Fundamental Principles of Management London: Sage Publications. Sekhar, G. V. S. (2010) Business Policy and Strategic Management Delhi: IK International Publications. Read More