SLIDE 1 : INTERNATIONAL CULTURE

Chapter 11 : Regional & Global Strategy

1. Why did P&G engage in foreign investment in Saudi Arabia?

Research, studies and reports from internal and external sources estimate that basic sectors

of the Saudi Economy require huge investments. Saudi Arabia's huge oil reserves and

mineral resources, expanding domestic market, liberal labor policies, increasing number of

privatization targets, and generous package of investment incentives make it one of the best

investment locations in the Middle East for P&G. P&G chooses to invest in the Kingdom due

to Saudi Arabia reflecting traditions of liberal and open-markets and private-enterprise

friendly policies. In addition, the Kingdom has a good track record of political and economic

stability, and can boast of a modern world-class infrastructure to attract foreign

investment. Steady growth rates and the restructuring of the Saudi economy have opened

new horizons for investors. As a result, hundreds of investment opportunities are being

generated every year. 

Saudi Arabia has a rapidly expanding domestic market fuelled by a growing young

consuming population and also foreign labor with a reasonably strong buying power. Saudi

Arabia ensures equal treatment, protection and incentives accorded to all investors. Saudi

Arabia is a founding member of the Convention on Arbitration and is in the process of full

accession to World Trade Organization (WTO). The Kingdom is also a signatory to various

regional agencies guaranteeing level playing field to foreign investors.  And it is a member of

the Multilateral Investment Guarantee Agency (MIGA). The pre-investment assistance

provided by SAGIA and other government agencies includes helping foreign investors

prepare feasibility studies for industrial projects. They also provide information and statistics

for investment projects within the scope of Saudi Arabia’s development plans. P&G is fully

committed to playing an important role toward promoting regional and global economic

prosperity. To this end, P&G will continue with efforts and initiatives to achieve its dual goals

of economic stability and liberalization in Saudi Arabia. All the above factors related to

foreign investment attract not only P&G but also other global major players to setup their

business in Kingdom of Saudi Arabia.

2. How Pepsi improve its factor conditions in Saudi Arabia ?

International markets have now become the hotspots for Pepsi. These markets are Eastern

Europe, Mexico, china, Saudi Arabia and India. Pepsi has 37% global market share

operating in 190 countries. Saudi Arabia being one of the major market share, at each and

every level of Pepsi Cola Company  great care is taken to ensure that highest level of

standards are met in everything. In their product, factors like packaging, marketing and

advertising are regularly improve and excelled because they think their customer deserves

the best quality products. They promise to work towards improvements in all areas of their

organization. In their manufacturing and bottling process, strict quality controls are followed

to ensure that Pepsi products meet the same high standards of quality that customers

expect from them. They also follow strict quality procedures during manufacturing and filling

of their packages. Each bottle and can goes through inspection and testing process. State of

the art process & technology is used that helps to prevent any foreign material from

entering the product. Additional quality control measures help to ensure the integrity of

Pepsi products throughout the distribution process from warehouse to store shelf. Pepsi

Cola local bottlers determine which products to pack and sell in their territory based on local

consumer demand and other market factors.

3. How could KFC improve its products to meet the competition of its rivalry such as Albaik ?

KFC is one of the fastest and largest growing fast food chain in the world. But it is very hard

to realize being the famous and multinational fast food chain it cannot step-up its footprint in

to the Saudi Economy. The first and only reason of its failure is due to its greatest rival Al

Baik. Not only the KFC but most of the foreign fast food are effected of Al Baik. Al Baik is a

local fast food chain which has been around since 1974 in Saudi Arabia. After 39 years by

now, the restaurant is mainly operating in Jeddah with number of branches mainly in

Makkah, Madinah, Yanbu and Taif. Arguably, Al-Baik possesses the highest market share

and customer loyalty amongst its competitors especially in Jeddah compare to KFC or any

other fast food chain.

Let’s shed some lights on how to overcome Al-Baik by improving KFC factors:

The Quality & Price: By providing better quality and low price compare to Al Baik.

The Trustworthy Brand: KFC need to make a very strong brand equity whether we

are measuring it by evaluating the restaurants products or by studying the brand

impact on customers. KFC need to address brand communicates by strong

messages of quality, fast service, trust, affordability, convenience, and social

responsibility. Its management has to be very smart emphasizing its values into the

brand using different methods of advertisements, public relations, or even by

spreading stories about the brand.

Superb Customer Service: whether we are talking about fast service,

servicescape design, or cleanness of the restaurants environment; KFC should

improve by providing exemplary services in all of that.

Convenient Locations: By selecting convenient locations for setting up restaurants.

With this convenient locations they can reach the right customer at right place.

Social Responsibility: Being social responsible towards the Saudi Citizens and

Saudi Arabia. To prove themselves being an foreign fast food they care and respect

about the Saudi Arabia and it policies.

4. Is the McDonald company a multinational enterprise ?Is it global ? Why?

McDonald is a multinational company because aside from its main parent headquarters in

the United States of America in Oak Brook. It has set up regional headquarters in other

countries, like Great Britain, Canada, Singapore, India and so on. Such a globalised

company has profound effects on the company itself and the host countries.

McDonald's size, share, growth

McDonald's first international expansion occurred in 1967 when the company opened in

Canada. The company's international division was formed shortly after in 1969 and has

continuously grown since. Over the years, the international section of the McDonald's

Corporation has become increasingly more important to the company's overall success. As

of this past year, non-US based restaurants account for over half of the company's $40

billion in revenues. Foreign restaurants now account for about 60% of McDonald's total

profits. Currently, McDonald's is the market leader in 96% of the markets they do business

in around the world and it is very common for McDonald's to hold over 50% of the fast food

market in foreign markets. In the last ten years, almost 90% of McDonalds' expansion

occurred in countries other than the United States. There is a tremendous increase in

international units from 7,600 in 1998 to more than 14,000 by 2010, largely in Japan,

Canada, Germany, Great Britain, Australia, and France. Additionally, the number of

international countries nearly doubled from 89 in 1991 to 214 in 1998. The rationale behind

these important decisions stemmed foremost from the increasing amount of saturation that

had evolved in the United States. This saturation was in the past, and is currently, forcing

McDonald's to slash prices and as a result profits in its domestic market. To counter this

trend, international restaurants were franchised and invested in. As was mentioned earlier,

foreign markets are extremely more profitable for McDonald's than U.S. operations.

McDonald's detected this trend early as an opportunity through marketing research and the

idea of utilizing the heavily populated areas of focus to cut costs and increase profits. It

operates 6,502 of its own restaurants and franchises 25,465 more worldwide. It actually gets

more sales from Europe (42%) than from the United States (34%).It still has an

extraordinary history of growth, with six straight years of earnings growth. After careful

consideration of all the above factors, we observe that Mc Donald’s is globalized business.

SLIDE 2 : INTERNATIONAL FINANCIAL MANAGEMENT

Chapter 14 : International Financial Management

No Assignment Questions Available in the Slide

SLIDE 3 : INTERNATIONAL TRADE

Chapter 6 : International Trade

1. Based on the theory of absolute advantage and the theory of comparative advantage how can you justify the investment expansion on Hajj industry in Saudi Arabia and the export of gasoline?

Absolute Advantage : In economics, the principle of absolute advantage refers to the

ability of a party (an individual, or firm, or country) to produce more of a good or service than

competitors, using the same amount of resources.

Comparative Advantage : In economics, comparative advantage refers to the ability of a

party to produce a particular good or service at a lower marginal and opportunity cost over

another. Even if one country is more efficient in the production of all goods (absolute

advantage in all goods) than the other, both countries will still gain by trading with each

other, as long as they have different relative efficiencies.

Based on the theory of Absolute and Comparative advantage, if we took the case of Hajj

industry absolute advantage applies on it. Because Hajj is a pilgrimage and Saudi Arabia

plays a key role in providing facilities to pilgrims coming across the globe. To satisfy the

millions of travelers across the globe, huge investment expansion are required on hajj

industry and it is considered as the main source of economy for Saudi Arabia.

Comparative advantage applies on Saudi Arabia, as it was the world’s largest producer and

exporter of petroleum and other liquids in 2012, producing an average of 11.6 million barrels

per day (bpd) and exporting an estimated 8.6 million bpd (net) said the US Energy

Information Administration (EIA). In 2012, 16% of Saudi liquids exports were sent to the

United States, accounting for 13% of total U.S. liquids imports. In addition to leading the

world in production and exports, Saudi Arabia has an estimated 268 billion barrels of proved

oil reserves—over 16% of the global total—and is the only country in the world with

extensive spare oil production capacity, which can help cushion market disruptions.

2. Why EU protect their petrochemical industries ?what barriers can be used? Who can be affected by these barriers?

The petroleum industry is an industry for the future of the European Union Country. The plan

for long-term management and value creation from the petroleum resources will facilitate the

existence of the petroleum industry as a key activity in European Regions for decades to

come. The Government’s petroleum policy is therefore based on a generational perspective.

The Government will implement the following measures to increase voluntary recovery from

proven resources. In connection with processing of new developments

- Introduce a practice whereby plans for development and operation (PDOs) are

submitted earlier in projects with more rapid progress.

- Ensure that installation of fixed rigs is considered by the licensees in connection with

relevant new developments.

- Contribute to coordination of developments and fields when this is the best solution

from a resource management point of view.

- Evaluation of power from land as an energy solution for new fields and in connection

with major modifications of existing fields, including an evaluation of relevant lifetime.

- Follow up to ensure that operators of new field developments in the petroleum sector

apply for connection to the grid in cases where power from land is a relevant

alternative.

- Amend the Petroleum Regulations so that licensees cannot lease production facilities

from associated companies.

- Intensify the follow-up of late phase fields. Require new production plans for late

phase fields, where this is deemed appropriate.

- Consider the need for additional reinforcement of the regulations to ensure adequate

focus on increasing recovery and good resource management.

- Approve applications for further extension of license periods for a production license

with the same ownership structure if the application substantiates better exploitation

of the resources, unless special factors indicate otherwise.

- Together with key players in EU, to achieve greater efforts towards piloting new

technology. Consider establishment of a research centre in the field of improved

recovery, based on an open competition.

3. Why does IBM produce their computer in China?

China's Lenovo Group signed an agreement with IBM to acquire its personal computing

division. Lenovo will pay $1.25 billion in cash and equity for the business. In addition to

money, IBM will also take a 18.9 percent stake in Lenovo, they said. The cash and equity,

combined with the assumption of debt, brings the total value of the deal to about $1.75

billion. Following the deal, the two companies will enter an alliance under which IBM

becomes the preferred services and customer financing provider to Lenovo and Lenovo

becomes the preferred supplier of PCs to IBM. IBM is getting out of the PC manufacturing

business because it sees greater profits in the services market.

The reasons behind the selection of China as the prime producer of computers of IBM:

- To know higher profit margins can only be realized through greater cost efficiencies

and better utilization of time and money. Outsourcing manufacturing is critical to

maximizing productivity.

- It generates the necessary funds for increased R & D. This enables companies to

remain on the forefront of their industry in the increasingly competitive global

economy. The concept of “creative destruction” or being willing to constantly adapt to

maximize productivity is the genius of American entrepreneurship.

- They can concentrate on R&D and sales, outsourcing the vast majority of their high

volume and/or labor intensive assembly operations - thereby eliminating problems of

production, staffing and continuing plant modernization.

- Gain Access To World Class Capabilities, Partnering with an offshore outsourcing

organization like Lenova with world-class capabilities can offer access to first class,

proven offshore manufacturing services in China.

- Reduce or Control Operating Costs, The single most important tactical reason for

offshore outsourcing is to reduce manufacturing costs of high volume or labor

intensive manufacturing and assembly operations.

- Dominating your Market, Many companies are famous for using the cost advantages

they realize from offshore outsourcing to cut the price of their products which in turn

leads to an increase of their market share and eventually enables them to dominate

their market.

- Improve Business Focus, Offshore outsourcing of all appropriate product allows

companies to put their main focus on broader business and sales issues

- Eliminating Production Upgrades

SLIDE 4 : MARKETING STRATEGY

Chapter 11 : Marketing Strategy

HSBC board decide to operate in Saudi Arabia

1. How would HSBC use market assessment to evaluate sales potential for its financial products in Saudi Arabia?

HSBC is known as one of the largest financial and banking services industries in the

global environment. The company is headquartered in London and has an international

networks which composes of over 10, 000 offices in more than 82 states and territories

within Asia-Pacific Region, Europe, United States of America, Africa and Middle East.

Because of the global network connects by the implementation of advances technology

like the internet and information communication technology, the company has been able

to provide an intensive range and reach of financial services which includes commercial

banking, investment banking and market personal financial services, and other banking

and financial products and services.

Market Assessment Evaluation Strategies used by HSBC

In order to compete successfully and reach competitive advantage, HSBC has been able

to use different strategies to evaluate sales potential in Saudi Arabia. One of the

strategies used by HSBC is the ‘managing for Growth” strategy. Such strategy enables

the company to grow and develop even more. The strategy has been able to build the

strengths of the company and adheres with the areas which are in need of further

enhancement. Since the main objective of the company is to be the leader in financial

services sectors in Saudi Arabia, the company uses strategy that strives to protect and

sustain a leading position.

HSBC has also been able to use a “strategic human resource management” to assess

the market. For HSBC (SABB), an organization that has employees who are productive

and highly motivated will help them reach their organizational sales goal. In addition, the

company also applies customer relationship management approach so as to maintain

good relation among their target in Saudi Arabia. The objective of using CRM is to make

sure that the company is always adhering to the needs and demands of the customers.

Through the use of the information technology, the company has been able to reach

different customers from all over the parts of Saudi Arabia and provide them quality and

satisfactory products and services. The company also uses strategic management to

ensure that all their business practice will enable them to have a competitive advantage

in Saudi Arabia market. HSBC is aware that having good reputation in the marketplace

helps the company in becoming more appealing Saudi Arabia market. With this, part of

their strategy is to implement a corporate social responsibility which will is recognizes its

accountabilities within the Saudi Society. The company sees to it that they are always

aspired with the highest principles of conducts. The strategy of HSBC gives emphasis on

four customer groups. These include, Private Banking, Personal Financial Services,

Commercial Banking, and Corporate, Investment Banking and Markets. In order to make

sure that the specific needs and demands of these customers and clients, the company

also uses different strategy for each customer groups. The management of HSBC

perceived that by effectively managing its internal and external reports for each customer

segments, customer satisfaction and sales targets can be achieved. Branding is also

considered as one of the most important strategy utilized by HSBC. With its brand

reaching customers all over the globe specially Middle East, the company has been able

to maintain it competitive and leadership position in the GCC business environment.

2. Does HSBC need to modify its financial products to fit Saudi market? Why ? Or why not?

HSBC Saudi Arabia Limited is a joint venture between The Saudi British Bank (SABB)

and HSBC established in 2005, as a limited liability company headquartered

in Riyadh, Saudi Arabia with a share capital of SAR 50 million. It is the first full-service,

independent investment bank to be established in the Kingdom of Saudi Arabia and

serves as HSBC’s investment banking arm in the Kingdom. HSBC group holds a 60%

stake in the joint venture with SABB holding 40%. The bank provide services in

corporate finance, asset management, equity brokerage and security.

HSBC would be restructuring its Islamic finance business, focusing on global wholesale

customers and their investment business through their Saudi Arabian operations.

Indifferent results in the Middle East and GCC and the decision by the authorities in

Qatar to rescind approval for Islamic window operations have undoubtedly played a part

in HSBC's decision. The announcement said, ‘As a result of a strategic review of its

Islamic finance business, the HSBC Group (HSBC) has announced that it will focus and

modify its Islamic finance offering on customers in Saudi Arabia. HSBC will continue to

offer wholesale Islamic financing/sukuk products to its global client base through its

operations in Saudi Arabia. Following the modify of its products , HSBC / SABB will

retain 83% of the Group's Islamic business revenues. In Saudi Arabia, Islamic financial

products will be offered through The Saudi British Bank (SABB). HSBC Saudi Arabia

Limited, in which HSBC Holdings plc indirectly holds a 49% shareholding, will offer

Islamic investments and wholesale Islamic financing/sukuk products to customers

globally. The Group will cease to offer Shari'ah compliant products and services in the

UK, the UAE, Bahrain, Bangladesh, Singapore and Mauritius, with the exception of

wholesale Islamic financing/sukuk products that will continue to be offered in these

jurisdictions and globally through HSBC Saudi Arabia Limited.

3. Would HSBC use the same message to promote its financial products in Saudi Arabia or would it have to develop different promotional strategy?

Around the world corporations are increasingly becoming aware of the enhanced value

that corporate branding strategies can provide for an organization. The strategy requires

clear objectives and a focus in line with an organization’s corporate goals; the right

customers must be targeted more effectively than they are by its competitors, and

associated marketing mixes should be developed into marketing programmes that

successfully implement the marketing strategy. Central to achieving a company's

corporate vision is the need to build up a loyal customer base of satisfied customers.

HSBC promotes its products in Saudi Arabia by developing a clear marketing strategy

based on a desire to fully satisfy a carefully targeted set of market segments. Market

segmentation is at the core of robust marketing strategy development. This involves

identifying customer needs, expectations, perceptions, and buying behavior so as to

group together homogeneous customers who will be satisfied and marketed to in a

similar manner. Additionally, acquisitions still remains an integral part of their

promotional strategy. It will also focus on investing in its delivery platforms, its

technology, its people and its brand to support the future value of HSBC. They argue that

their core values are integral to its strategy, and communicating them to customers,

shareholders and employees is intrinsic to the plan. These values comprise an emphasis

on long-term, ethical client relationships; high productivity through teamwork; a confident

and ambitious sense of excellence; being international in outlook and character;

prudence; creativity and customer focused marketing.

HSBC state that their brand name has been an outstanding success and they will

continue with the next phase of their strategy. They argue that the brand name is now

sufficiently strong that they can accommodate brand variety at customer, product and

even country level as and when required by the business model. Adding, reputation on

their part is the key element of the brand proposition and cannot be overstated. Their

policies for corporate social responsibility and the environment are part of their brand

name in which they reach their objectives through the philanthropic objectives of the

company.

4. How would currency risk affects HSBC profits

HSBC is effected by fluctuations in currency exchange rates and can erode its profits.

Conducting business internationally, even small changes in foreign currency values can

have a big impact on the bottom line. Foreign exchange risk explained the most common

cause of foreign exchange risk arises from making overseas payments for your imports

that are priced in a foreign currency and receiving foreign currency as payment for your

exports. Exposure to foreign exchange risk can also arise from:

Foreign currency borrowing or deposits

Overseas subsidiaries

Assets located overseas

Failing to protect against movements in FX rates effectively means buying or

selling without having agreed to a price in dollars.

Importers and exporters of goods and services

Owners of overseas assets, joint ventures or partnerships

Group companies and subsidiaries in more than one country

Managing Risk:

The FX specialists on our Global Markets team will work with you to develop a four point

plan to help minimize your foreign exchange risk and protect your profitability.

Understand your exposures

Understand the solutions

Develop a strategy

Implement your plan

Factors that affect currency rates

Short-term factors

- Interest rates

- Trade flows

- Natural disasters

- Economic growth

- Links to commodity based currencies

- Conflict

- Short term inflation

Long-term factors

- Long term inflation

- Economic growth

SLIDE 5 : MULTINATIONAL STRATEGY

Chapter 8 : Multinational Strategy

1. Given the competitiveness of the environment, how much opportunity exist for SABIC in the international petrochemical market?

Saudi Basic Industries Corporation (SABIC) has been honored by global management

consulting firm The Boston Consulting Group (BCG) for their globalization achievements

and being competitive in the international petrochemical market with a ‘BCG 2013 Global

Challengers’ Award.  Since 2006, BCG annually identifies the top 100 emerging market

companies that are developing very quickly with the potential to reshape industries and

surpass many traditional multinational companies. SABIC, with more than US$50 billion

in revenues and 40,000 employees globally, SABIC has become a well-established

brand in the global chemicals industry. SABIC has become a cornerstone not only of the

Kingdom’s economy, but has come to play an instrumental role in the global playing field.

In the past five years, the 2013 Global Challenger companies have created 1.4 million

jobs, while employment at the non-financial S&P 500 stayed flat. The companies

average revenue was $26.5 billion in 2011, the most recent year for which figures are

available, compared with $21 billion for the S&P 500’s non-financial companies and $20

billion for the entire S&P 500. In the same year, they purchased more than $1.7 trillion of

goods and services and invested more than $330 billion in capital expenditures.

2. What type of generic strategy SABIC should employ ? Why?

SABIC had entered into a research collaboration agreement with the Swiss university

last year in the field of functional materials and nanotechnology. The new agreement will

strengthen this research alliance and allow the two sides to enter into strategic

partnerships. The agreement will allow SABIC to develop advanced technologies into

innovative solutions to meet global market needs and demands in many societal areas.

The collaborative projects with well-established scientific organizations and research

centers are an essential part of SABIC’s generic strategy. SABIC believes that it is the

“most consistently profitable” public company in the Middle East. “By creating a

corporate environment which inspires innovation and talent we have positioned SABIC

as one of the world’s largest petrochemical businesses. A new business strategy with

continued investment commitment in plant and equipment will ensure to achieve its long-

term goals. SABIC says that although its actions and business decisions have always

been made with a long-term view, it recognizes that its plans will be impeded by short-

term economic conditions and cycles.

Therefore, to counter the present economic slowdown and provide for its continued

success, the company has implemented a wide range of measures to ensure SABIC

emerges in a much stronger position as the recessionary cycle begins to change.

- First it will proceed with its planned and ongoing investments in plants and equipment

and it will continue to review other opportunities for investment which meet its long-

term goals.

- In addition, it has instituted a cost reduction program to ensure all of its operations

are maximizing their potential in the present market without limiting the company’s

ability to respond to existing customer needs as well as needs of new customers in

the future as the financial climate improves.

- Strengthening existing relationships and building new partnerships. 

SABIC states that its global operating model is based on the following strategic focus

“dynamic growth through collaboration”. This it says encapsulates the vision of its path

forward using a new operating model. SABIC’s continuing strategy includes:

(1) focusing on its marketing efforts; 

(2) improving productivity while maintaining high technical and quality standards; 

(3) integration of its business activities; and 

(4) training and career development of its employees.

 

3. What form of ownership arrangement is SABIC using to gain word market share ? Explain

325211 Plastics Material and Resin Manufacturing; 324110 Petroleum Refineries;

325120 Industrial Gas Manufacturing; 325181 Alkalies and Chlorine Manufacturing;

325188 All Other Inorganic Chemical Manufacturing; 325212 Synthetic Rubber

Manufacturing; 325222 Noncellulosic Organic Fiber Manufacturing; 325312 Phosphatic

Fertilizer Manufacturing; 325320 Pesticide and Other Agricultural Chemical

Manufacturing; 331221 Cold-Rolled Steel Shape Manufacturing; 331319 Other

Aluminum Rolling and Drawing; 551112 Offices of Other Holding Companies makes

Saudi Basic Industries Corporation, or SABIC, is one of the world's

leading petrochemicals companies. Following its acquisition of the petrochemicals

division of The Netherlands DSM, which also represented the company's first expansion

beyond its Saudi Arabia base, SABIC became the 11th largest petrochemicals company

worldwide. SABIC operates in five core business sectors: Basic Chemicals,

Intermediates Chemicals, Polymers, Fertilizers, and Metals. SABIC oversees the

operations of some 16 affiliated companies, many of which were originally formed as

joint ventures with Dow Chemical, Exxon, Mitsubishi, and other major companies

worldwide. The majority of the company's operations are located in the Jubail Industrial

City, custom-built for the company in the mid-1970s; the company also has operations at

Yanbu Industrial City, in Dammam, and joint venture partnerships in Bahrain. SABIC

remains controlled by the Saudi government at more than 70 percent; the remaining 30

percent of the company's stock has long been reserved for citizens of Saudi Arabia and

other Gulf Cooperation Council countries. In the meantime, SABIC prepared to launch its

operations in Saudi Arabia. As part of that effort, the company began sending staff to the

United States for training. At the same time, the company began signing a variety of joint

venture partners, which agreed to help the company establish its industrial operations,

providing technology, training, and marketing support, in exchange for access to the

company's plentiful and low-cost feedstock. By the end of that year, the company had

signed agreements with Dow Chemical, Exxon, Mitsubishi, and Korf-Stahl.

SLIDE 6 : PRODUCTION STRATEGY

Chapter 10 : Production Strategy

1. How can ARAMCO can used Six Sigma to improve the quality of their products?

Aramco uses Six Sigma in turn uses a project management model called DMAIC to find root

causes of process problems and to improve the quality of their products. The higher the

level of variation in a process, the less likely the process will be:

• Stable

• Reliable

• Predictable

• Repeatable

• Reproducible

In other words, in a process with high variation, you never know when you will receive the

product or what condition the product will be in when you receive it. The letters in the

DMAIC model represent the 5 phases of a Six Sigma project:

- Define: Scope the problem and state it in quantitative terms. Determine the risk of

not correcting it. Perform a cost/benefit analysis.

- Measure: Understand the process and validate the measurement system.

Determine process capability.

- Analyze: Identify sources of variation. Identify root causes.

- Improve: Determine and implement appropriate corrective action, usually using

Lean methods.

- Control: Put procedures in place to sustain the gains realized in the project.

2. What are the basic differences between the American and the Japan's method to

reduce the cost of their products? Which one is more affective?

When developing a new product in the U.S., the typical approach is to design it first and

then compute the cost using a standard cost approach. Direct material, direct labor, and

overhead standard costs are summed, and the resulting total is the new product cost. If the

cost is too high, the product goes back to design or the company accepts a smaller profit.

This approach to costing is called as Standard Costing.

In Japan manufacturing firms uses the Kaizen costing technique and compares it to the U.S.

method of standard costing. Kaizen costing is a Japanese technique used to manage

costs during a product's planning and design stages and has been used by some Japanese

firms for over twenty years. It is now widely used in Japan in such industries as electronics,

precision machinery, and automobiles. Its objective is to reduce current costs by using

various improvement tools such as value engineering and functional analysis for each

manufacturing facility. The term “Kaizen” translates as “continuous improvement”. A

manager in the United States generally expects to use cost information to make decisions

about pricing or investments, while a Japanese manager expects to use cost information to

reduce costs, the central theme of this article.

The chart below points out the primary differences in the two costing techniques.

Standard Costing vs. Kaizen Costing Standard Costing Concepts Kaizen Costing ConceptsCost control system concepts.

Assume current manufacturing conditions.

Meet cost performance standards.

Cost reduction system concepts.

Assume continuous improvement in manufacturing.

Achieve cost reduction targets.Standard Cost Techniques Kaizen Costing TechniquesStandards are set annually or semiannually.

Cost variance analysis involving standard costs and actual costs.

Investigate and respond when standards are not met.

 

Cost reduction targets are set and applied monthly.

Continuous improvement (Kaizen) is implemented during the year to attain target profit or to reduce the gap between target profit and estimated profit.

Cost variance analysis involving target Kaizen costs and actual costs reduction amounts.

Investigate and respond when target Kaizen amounts are not attained.

3. Why do many MNE used global sourcing ? Why do they not produce all the parts and materials in-house? explain

In the case of industrial products, the global sourcing strategy can be very complex as

different countries are evaluated, using labor costs and so on, as possible production sites.

Freight forwarders are used to move goods from one country to another, and banks are

needed to collect payment. Thus export, as well as import, strategies require the utilization

of experts to move ideas to finished products to final sales. In a study of European and

Japanese MNEs, for example, it was found that the MNEs use a mix of sourcing strategies

simultaneously when marketing the product in the United States. Fifty-nine percent of the

firms reported using a single sourcing strategy. All of the product was either exported from

the home country or manufactured in the United States for the U.S. market. Japanese firms

were more likely to export to the United States, whereas European firms were more likely to

manufacture in the United States. Some of the European firms used production facilities in

other European countries— and in some cases, Japan and Canada—to service the U.S.

market.

Global Sourcing and Production Strategies:

Most firms have the option of where they want to source (locate) production for worldwide

sales. As is the case in industries such as automobiles, for any given market the MNE can

manufacture the product itself, or it can buy the product from someone else. If it decides to

manufacture the product itself, it can either manufacture it in the local market or

manufacture it in another country and import it into the market. The true MNE is involved in

fairly sophisticated forms of production sharing, in which it may produce and/or assemble

components in one or several countries for markets all over the world. In its simplest form,

the MNE might manufacture goods in the home country and export them to final markets.

MNE could establish production in different countries to service those particular markets.

However, the past decade has shown an increase in intermediate goods, such as

components, being produced in many countries and shipped to other countries for assembly

and sale. The production and exporting functions are much more complex than they used to

be under the simpler forms. Historically, firms tended to operate on a country-by-country

basis. However, as firms have become more global in orientation, they have found that they

can develop a definite competitive advantage by coordinating and integrating their

operations across national borders.

For example, one of Ford Motor Company’s strategies is to assemble cars in Hermosillo,

Mexico, and ship them into the United States. The cars are designed by the Japanese

company Toyo Kogyo Co. (Mazda) and use some Japanese parts. Ford can purchase

components manufactured in Japan and ship them to the United States for final assembly

and sale in the U.S. market, or it can have the Japanese- and U.S.-made components

shipped to Mexico for final assembly and sale in the United States and Mexico. In the case

of Mexican assembly, some of the components would come from the United States, some

from Japan, and a small percentage from Mexico. If the components are manufactured in

Japan, many of the raw materials were probably imported. 64 different combinations for

manufacturing components and assembling them into final products for different markets.

This expanded model would account for the facts that components can be manufactured

internally to the firm or purchased from external (unrelated) manufacturers and that final

assembly can also be done internal to the firm or by external firms. Manufacture of

components and final assembly may take place in the home country of the firm, the country

where the firm is trying to sell the product, a developed third country, or a developing third

country.

SLIDE 7 : REGIONAL & GLOBAL STRATEGY

Chapter 11 : Regional & Global Strategy

1. Why did P&G engage in foreign investment in Saudi Arabia?

2. How Pepsi improve its factor conditions in Saudi Arabia ?

3. How could KFC improve its products to meet the competition of its rivalry such as Albaik ?

4. Is the McDonald company a multinational enterprise ?Is it global ? Why?

ALL THE ANSWERS ARE MENTIONED IN FIRST SLIDE

SLIDE 8 : MULTINATIONAL ENTERPRISES

Chapter 2 & 3 : Multinational Enterprises

1. Why do companies enter into internationalization process? Give examples for Saudi companies enter into foreign market?

At the most basic level, firms motivations to carry out FDI can be summarized by descriptive

lists where the firms reasons are certain to fall under at least one of the

following categories

Resource seeking,

Market seeking,

Efficiency seeking,

Strategic asset seeking

‘Push’ factors Facilitating factors ‘Pull’ factors

• Perceived/imminent saturation in domestic markets

• Spreading of risk

• Consolidation of buying power

• Public policy constraints

• Economic conditions

• Maturity of format

• Increased taxes

• Use of surplus capital/access to cheaper sources of capital

• Entrepreneurial vision

• Inducement from supplier to enter new markets

• Removal of barriers to entry

• Lower tariffs

• Unexploited markets

• Pre-emption of rivals

• Higher profit margins

• Consumer market segments not yet exploited

• Access to new management

• Reaction to manufacturer internalization

• Following existing customers abroad

Some examples of Saudi Companies are into internationalization process are SABIC, ALJ,

ARAMCO..etc.,

2. What are the advantages and disadvantages of investing in FDI vs. Portfolio Investment?

Foreign Direct Investment

This is the kind of investment in which residents of one country invest in a firm present in

another country and acquire a joint venture with the foreign firm. The International Monetary

Fund's Balance of Payments Manual defines FDI as "an investment that is made to acquire

a lasting interest in an enterprise operating in an economy other than that of the investor,

the investor's purpose being to have an effective voice in the management of the

enterprise". When a direct investment is made by an entity based in one country into

another entity that is based in another country, it helps to enhance globalization and cut

trade barriers

Foreign Portfolio Investment

This is a type of investment in financial securities such as bonds, debentures, stocks,

warrants, options, domestic mutual funds, etc., with an intent to get financial gain. An

important feature of FPI is that it can offer equity finance (money obtained from the investors

in return for the stocks issued) for the company. Some of the factors affecting FPI are tax

rates, interest rates and exchange rates. FPI reduces the foreign exchange gap for

developing countries or least developed countries (LDCs), thus making imports of highly

necessary products with least trade barriers.

FDI Vs. FPI

- The major point of difference between FDI and FPI is that direct investors gain interest

in the ownership (maximum 10%) by controlling the domestic firm, but portfolio investors

do not have any managerial control or securities control over the firm in which they

invested.

- FDI is a long-term process wherein the investor reflects a long-lasting and controlling

interest in the firm, while FPI is a short-term process.

- FDI is a direct investment in buildings, technologies, equipment and machinery

belonging to the firm of a host country (foreign firm), while FPI is an indirect investment

in the foreign firm by simply buying the stocks of the company and not getting involved

in any major activities of the firm.

- The investors of FPI are not interested in the management control of the firm in which

they invest as it is a short-term investment plan.

- Bigger loss or risk is involved in making of FPI as foreign shareholders cannot sue the

domestic stock exchange or the public entity in which they invested their money.

- Direct investors are more informed about the changes in the prospects of the project as

compared to portfolio investors.

- It is easy to sell off the shares in FPI as compared to direct investments made by an

entity from one country in another country. In other words, FPI is more volatile than FDI.

- FPI investors are more vulnerable to liquidity shocks than companies or entities that

make direct investments in foreign countries. This forces many FPI investors to liquidate

their investment at a faster rate.

- The probability of withdrawal of FPI is greater than that of FDI.

3. What are the process taken by P&G before it has FDI in Saudi Arabia?

Established in 1837 Procter & Gamble (P&G) has become the world's leading manufacturer

of consumer goods. Targeting over five billion consumers in 140 countries, P&G produces

and markets over 300 quality brands. Procter & Gamble (P&G), the largest television

advertiser for the domestic products in the Middle East and across globe, have focus its

expansion efforts on emerging markets such as the Arabian Peninsula mainly Saudi Arabia

to achieve its goal of doubling global sales over the coming years. P&G have gone through

various methods and process before make an Foreign Direct Investment in Saudi Arabia.

The company, which is based in Cincinnati, Ohio, expand its global sales network through

an aggressive campaign to extend the reach of its consumer goods into Saudi Arabia. They

want to double the size of the company by penetrating the market of Saudi Arabia and it's

not coming out of context till FDI was introduced. They have penetrated the Arabian market

partly because of acquisitions and partly because of the new markets that we got into.. P&G

has operated in the Arabian Peninsula since 1956, opening its first centre in Jeddah. Its

second Gulf hub was opened in Jebel Ali in 2003. Since then, it has acquired companies

with pre-existing profiles in the region, such as Gillette, Wella and Herbal Essences, helping

to push it into the top 15 firms in Saudi Arabia. As part of its ongoing commitment to invest

in the Arabian Peninsula, Procter & Gamble (P&G), the world's leading consumer goods

manufacturers, has just inaugurated its new operations base for the Gulf in the Jebel Ali

Free Zone, in the UAE. Before FDI,  P&G regional management, business partners,

distributors and corporate marketing agencies together with a number of prominent local

businessmen and industry representatives are used to penetrate in to the Saudi Arabia

Domestic Market. P&G first entered the Arabian markets in 1953 and today consumers

throughout the region trust and rely upon P&G products for their quality and excellence.

P&G is a uniquely diversified international consumer products company with a strong local

presence across the Arabian Peninsula through its offices in Jeddah, Sanaa, and now Jebel

Ali, and its production plants in Jeddah and Dammam in Saudi Arabia.