Principles of International Business Management - Essay Example

Principles of International Business Management Task Chose ONE multinational company and examine the following: A. How did the company undertake foreign investments B. What motivations did the company have for undertaking foreign investment Answer: We'll try to analyze the FMCG major, Reckitt Benckiser Plc for this purpose. Reckitt Benckiser started off1 in the year 1814 when Jeremiah Colman began milling flour and mustard in Norwich, UK. In the year 1999, Reckitt & Colman plc and Benckiser N.V. merged to become Reckitt Benckiser plc - The world no.1 in household cleaning products company. The purpose of company's Code of Business Conduct states, 'to ensure that management and employees across the Group have a clear understanding of the principles and ethical values that the Company wants to uphold.' Company recorded revenues of 4,179 million during the fiscal year ended December 2005, an increase of 8% over 2004. Having established itself on a firm footing within the domestic markets, the company started looking for avenues of growth in foreign markets. To undertake such an initiative, the company studied took stock of its internal as well external factors which drive its urge for entering a foreign market. Internal factors are of course the strengths of the company while external factors were compiled after doing an environment analysis. In addition the company also undertook an analysis of PESTLE factors for the particular markets, where the company was supposed to go. All such factors were not looked into 'in isolation', because one particular factor might have a spillover effect on couple of other factors and vice-versa. All such permutations and combinations were taken into account while preparing for an expansion strategy. Reckitt Benckiser has over the year successfully implemented the strategy of building strong brands across all its key categories like surface care, fabric care, dishwashing, home care, health and personal care and food. If Lysol is a leading brand in disinfectant cleaning, Calgon holds the number one market position in fabric care in Europe. Similarly placed are the major categories like Vanish (fabric care), Veet (cosmetic depilatories), Mortein (pest control) and Airwick (air fragrance). The company highlighted the brand equity to its fullest potential, while negotiating with foreign collaborators for investing in a new market. This strategy paid off rich dividends for the company with its top 15 brands consistently accounting for a majority of the company's revenues, from 40% of total revenues in 2001 to about 56% in 2005. Such a brand creation in different categories allows Reckitt to; Differentiate its products and earn a price premium and Provides a competitive advantage to the company in the market place. In addition the company also resorted to ambush marketing depending upon the scenario of competition in some of the foreign markets. For example, in one such recent case (23 Nov 2006), the company also won a legal battle against its rival in India, Hindustan Liver Ltd. (HLL), when the courts upheld the contention of Reckitt Benckiser concerning the advertisement of Dettol soap. For marketing the products the company has been dependent on Supermarkets and hypermarkets which form the most important distribution channel, e.g. accounting for 65.2% of the UK market's value and 69.5% of the European market's value. The company used innovation as its core competitive strategy which helped the company in creating product differentiation and providing it the competitive edge. Motivational factors for undertaking foreign investments are mainly; To tap the vast consumer market outside Europe and UK. Markets in India, China and other Asian countries are developing very fast and these markets have immense potential for a company dealing with consumer items. The company had established itself quite well in the home market and wanted to move on in newer markets. Company wanted to take the competitors head on, not only in domestic market but in overseas market as well. To remain in business, the company was supposed to make long term plans for its survival so that the company could survive minor glitches and seasonal variations in the revenue earnings. Exploring overseas markets provides the company a foothold in a new environment, providing it an opportunity to deal with newer situations and come out with innovative plans for dealing with customers. Consumers in two different countries will have different preferences, marketing habits, spending patterns etc. Planning for such diverse situations provides a company a wider horizon. Task-2: Case Study 1. List the advantages and disadvantages of developing the market Advantages of the market in Czech Republic: The Czech Republic i.e. Czechoslovakia's is strategic located at the center of Europe. It comprises historical areas of Bohemia, Moravia and a portion of Silesia. Bohemia in particular has a rich cultural history. With a population of more than 10 million, Czech Republic started out on the road of economic reform programs in 1990s. Gradually these reforms delivered a productive market-driven economy which was able even to survive the 2001 global slowdown. Economic growth has been quite consistent in recent years, with the GDP recording a compound annual growth rate (CAGR) of 3.5% during 2000-2005. Projections for future too remain very much positive for the economy, and in the medium-term, the Czech economy is forecast to record a CAGR of 6% during 2005-2010. Czech Republic became part of European Union (EU) in May 2004, which allowed the nation to deepen trade and investment relations with the core EU economies. Advantages of the market in Turkey: Turkey is a much bigger market than Czech Republic. With more than 74 consumers, the country recorded a CAGR of 4.3% for the period 2000-2005, a major improvement over preceding years. The country was in deep recession in 2001 when its economy contracted by 7.5%, but thanks to some of the bold initiatives taken up by Turkey the economy has recorded four consecutive years of good growth ranging between 5.8% and 8.9%. Disadvantages of Czech Market Czech Republic is not a big market in itself and the country also exports bakery products, bread, biscuits, and cakes. This would imply that William Brown will have a real task in their hands while enforcing an entry into this market. Disadvantage of Turkish market The Turkish economy has not been able to come up with good results for the past few decades. With very high rates of inflation, the market is therefore not very upbeat with enthusiastic consumers. This is the case with almost all sectors in the market. 2. Indicate in outline form what the elements of the Marketing mix would have to be for the market The marketing mix is a very important part of strategy while exploring newer markets. It involves the basic four elements of marketing strategy called the 'four Ps', namely price, place, product, and promotion. For exploring an overseas market; Price: The Price should be an inviting one, i.e. keeping in mind the prices of the products from competitors, the price should not be too much out of range for the common man, but it should not be too low to make way for acute losses from day one. The price has to be right for the customer as well as for the producer. Place: Mark will have to make sure that the particular market that is being opted for, is not already overcrowded with other bakery products. Of course, the competition will be there in every market, but William Brown will have to first make room for itself in the newer market. Once the company gets a foothold in the newer market, it can start consolidating its position. Product: As of now, William Brown range includes Sponge cakes, Celebration cakes (i.e. birthday and Christmas), Specialty flavored cakes (i.e. brownies, coffee cake), Chocolate covered biscuits and Plain biscuits. Here Mark and his strategists will have to decide the final course depending upon the time and season of entry. For example, if it's a season of festivities then William Brown will have to come out with different varieties of celebration cakes etc. Similarly if it's around some special days like Valentine day the company will have to come out with different types of chocolate delicacies etc. Promotion: Today we are living in a world hugely dominated by the media in general and electronic media in particular. Therefore the product from the stable of William Brown must be noticed by the customer on their TV screens, whole page advertisement spreads in local newspapers etc. This will help in pursuing the prospective customer to switch-over from their existing brands to William Brown. 3. Highlight the supply chain issues which would assist or prevent William Brown from exploiting the market fully The reliance of William Brown on its own fleet of vehicles for supplies in the domestic market is a big asset for the company on the home ground, but maintaining such a fleet of vehicles in the untested overseas market is not an easy task. The company will have to adapt itself to the newer situation, sooner than later. To start with they'll have to enter into strategic tie-ups with supermarket chains in Czech Republic and Turkey, with manufacturing sites at Dudley and Telford. But gradually the company will have to start manufacturing from newer locations in Czechoslovakia and Turkey in order to arrive at break-even point. Task-3: International Human Resource Management 1. Explain why it is considered necessary to create a 'level playing field', in the context of how employers are required to manage their staff in each EU member state. What does this mean in practical terms for an employer who operates his/her business within one of the twenty five EU member states It was in 1957 when a formal vision of Common European Market was set in motion by the Treaty of Rome, with the aim of increasing economic prosperity and contributing to "an ever closer union among the peoples of Europe". This vision materialized in 1999. of European employment and social policy aims for promoting a decent quality of life and standard of living for all in an active, inclusive and healthy society (EU, 2000). In order to allow a level playing field to the employers within the EU nations, EU specifies similar working conditions amongst in all the members states. This will help in resulting in mass exodus of working professionals from one EU nation to another. This is of particular importance when sincere efforts are on to make Euro as the single currency in the EU area. European labor markets are commonly described as rigid and labour mobility within the EMU members is limited. This causes concern as it proves discouraging for the competitive environment. To do away with this type of rigidity, employers in EU nations are required to manage their staff with similar set of HR policies. It is worthwhile here to mention that the North American job market happens to be dynamic and flexible, which helps in lowering the unemployment figures. It is another matter that, owing to the outsourcing phenomenon these economies are now hard pressed for a solution for unemployment. One reason for this is that the United States has unusually weak provisions for job security, both in its labor legislation and in the contents of many collective-bargaining agreements. Taking a cue from this, EU has tried to take care of unemployment issues and free movement of professionals within the EU region. Nations with a flexible labor market, able to shift workers from one economic activity to another quickly, smoothly, and without social disruption, would have a substantial competitive advantage over countries unable to adjust smoothly to today's quickly changing demands for various working skills as technology progresses and consumer tastes vary. 2. Describe how, with reference to European Union employment legislation, and its desire to bring about social change, it could be argued that this is bringing about a convergence in human resource management practice across the 450 million of the combined EU member states. The European Union since its inception in 1957 under the Treaty of Rome has had two broad aims, which were to create a Europe that: Happens to be economically more interdependent, thereby rendering war between the European countries less likely. Is likely to trade capably on the world stage by creating a common market between member states. With these twin goals in mind and combating a poor employment and labor market performance of many Member States EU was prompted to bring about a social change by virtue of a convergence in human resource management practices across the 450 million of the EU member states. Management of people in particular is a very complex issue as it requires managing the production/ manufacturing schedules embedded with attitudes, values and culture of the people. For the nations economy it is very important to manage the human resources in such a manner that the organisation/s can take optimum support from people. As part of the strategy for effective economic development EU introduced the four freedoms of the internal market: 1. Movement of goods (excluding agriculture and fisheries, which are included in the Agreement only to a very limited extent) 2. Persons 3. Services 4. Capital Storey (2001) defined HRM as; Human resource management is a distinctive approach to employment management which seeks to achieve competitive advantage through strategic deployment of a highly committed and capable workforce using an array of cultural, structural and personnel techniques European Union therefore wanted to make the 'union' more competitive and homogenous in order to present a unified face to the outside world. Human resources are considered the most important factor for efficient performance of a state. Hence EU brought about the convergence of HR practices, so that all nations get equal opportunities to share the fruits of societal development. But, practice, despite the Charter on Fundamental Rights and various harmonizing facilities, driven by intercultural and legislative factors, there are still significant differences in HRM practices amongst the EU members, which need to be harmonized for still better performance. References: 1. Reckitt Benckiser Plc, http://www.reckittbenckiser.com/ (Feb 24, 2007) 2. Europa, Gateway to the European Union, http://europa.eu/index_en.htm (Feb 26, 2007) 3. EU (2000), European Employment and Social Policy: a policy for people, available online at, http://ec.europa.eu/publications/booklets/move/24/txt_en.pdf (Feb 26, 2007) 4. Storey ,J. (Ed.), 2001, Human Resource Management. A Critical Text, 2nd Edition, Thomson Learning. 5. OECD, "Economic Survey of the Euro Area 2004", http://www.oecd.org/document/47/0,2340,en_2649_201185_33618087_1_1_1_1,00.html (Feb 27, 2007) 6. Michael D. Bordo, Lars Jonung (September 1999), "The Future Of EMU: What Does The History Of Monetary Unions Tell Us" Read More