INDIAN SCHOOL OF MANAGEMENT AND STUDIES SUB: INTERNATIONAL BUSINESS MAX MARKS: 100 Executive Masters Program in Business Administration (E-MBA) (Semester II) Note :- Solve any 4 Case Study All Case Carry equal Marks.
INDIAN SCHOOL OF MANAGEMENT AND STUDIES
SUB: INTERNATIONAL BUSINESS MAX MARKS: 100
Executive Masters Program in Business Administration (E-MBA)
(Semester II)
Note :- Solve any 4 Case Study
All Case Carry equal Marks.
CASE I
INDIAN SCHOOL OF MANAGEMENT AND STUDIES
SUB: INTERNATIONAL BUSINESS MAX MARKS: 100
A GLOBAL PLAYER?
This is one game that India has permanently lost to its arch-rival Pakistan -
manufacturing and exporting sports goods. Historically, when India and Pakistan were
one before 1947, Sialkot, now in Pakistan, used to be the world's largest production
centre for badminton, hockey, football, volleyball, basketball, and cricket equipment.
After the creation of Pakistan, Jalandhar became the second centre after Hindus in
the trade migrated to India. Soon Jalandhar overtook Sialkot and till the early 1980s it
remained so. However when the face of the trade began to change in the 1980s and
import of quality leather and manufacturing equipment became a necessity for
quality production, Pakistan wrested the initiative as India clung it its policies of
discouraging imports through high duties and restrictions. As it was, the availability of
labor and skills was a common factor in both Sialkot and Jalandhar, but with Sialkot
having the advantage of easier entry, most of the world's top sports manufactures
and procedures developed an association with local industry in Sialkot that continues
even today. Ten years later, in the early 1990s, when Manmohan Singh liberalised the
norms for importing equipment and raw material required for producing sports goods,
it was too late as majority of the global majors had already shifted base to Sialkot.
In 1961 the late Narinder Mayor started the first large scale sports goods
manufacturing unit, Mayor & Company, thereby laying the foundation of an organized
industry. Even today, more than 70 percent of the industry functions in an
unorganized manner. Starting with soccer balls, Mayor expanded to produce
inflatable balls like volleyballs, basketballs, and rugby balls. Today his two sons Rajan
& Rajesh have built it up into five companies engaged in a wide array of businesses,
though sports goods remain the group's core business. While the parent trading
company, Mayor & Company, remains the leading revenue-earner to the tune of Rs.
55 crore annually out of a total group turnover of Rs. 85 crore-plus, Mayor's second
venture, the Indo-Australian Mayor International Limited, is spinning another Rs. 15
crore. Mayor International is a 100 per cent export-oriented unit (EOU) exclusively
manufacturing and exporting golf and tennis balls.
The product portfolio of the company comprises the following:
Inflatable Balls
Soccer balls and footballs (Professional, Indoor, Match and Training, leisure
toy)
Volley balls, rugby balls (Volley balls and Beach Volley Balls)
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INDIAN SCHOOL OF MANAGEMENT AND STUDIES
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Australian rugby, hand balls (English League, Union and touch) (Australian
rules, Australian Rugby League balls with laces)
Boxing Equipment
Boxing and punching balls (Boxing and Punching Balls, Head Gear, Gloves,
Punching Mitts and Kits Punching Bags & Bag Sets)
Gloves
Goal keeper's gloves (Football / Soccer)
Boxing gloves
Cricket Equipment
Worldwide distributor for Spading Cricket Bats, Balls and Protective
equipment.
HOCKEY EQUIPMENT
Worldwide distributor for Spading Hokey Sticks, Balls & Protective equipment
Based in Delhi, Rajan Mayor, 41 is the CMD of the group, which also comprises an IT
division working on B2B and B2C solutions; Voyaguer World Travels in the tourism
sector; a houseware exports division specializing in stainless steel kitchenware,
ceramics, and textiles; and a high school. Younger brother Rajesh, 34, is the
executive director and looks after all the divisions operating in Jalandhar. Technical
director Katz Nowaskowski divides his time equally between India and Australia,
where he looks after the group’s interests. “While inflatable balls are our prime
competence in our core business, we are presently focusing on golf balls, for which
we are the sole producers in South Asia. Out of a total Rs. 300 crore of sports goods
business generated in domestic market, most of which is supplied by the unorganized
players, golf balls constitute a miniscule amount and therefore we came up with a
100 per cent EOU for producing golf balls. Later the same facility was utilized with
little moderation for tennis balls too,” says Nowaskowaski.
Clarifying that the sports good industry in India only includes playing
equipment and not apparels or shoes, D K Mittal, chairman of the Sports Goods
Export Promotion Council and joint secretary in the Ministry of Commerce, has
certified Mayor group as the number one exporter since 1993 till date, barring 1996.
However, SGEPC secretary Tarun Dewan points out that being the number one
exporter does not mean that Mayor is the number one brand being exported.
“Actually we have tie ups Dunlop, Arnold Palmer, and Fila for manufacturing golf
balls. For footballs and volleyballs we have association with Adidas, Mitre, Puma,
Umbro, and Dunlop. We manufacture soccer World Cup and European Cup replicas
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INDIAN SCHOOL OF MANAGEMENT AND STUDIES
SUB: INTERNATIONAL BUSINESS MAX MARKS: 100
for Adidas, which is a huge market. Only 400 balls used for actual play in the World
Cup are manufactured in Europe & that too only for sentimental reason, otherwise we
are capable of delivering products of the same, if not better quality. Now since we
manufacture balls for them, we cannot antimonies them by producing balls of similar
quality with our own brand name. Secondly, I agree that competing with such big
quaint in the world market in terms of branding is a task that is well beyond our reach
at the moment. However, we are trying to brand ourselves in the domestic market
and that is one of the prime focus in the coming year,” says Rajan.
Coca-Cola, Unilever, McDonald’s, American Airlines, Disney club, and other
such big brands come up with huge orders at tines for golf balls with their logos for
promotional schemes. However, there is no mention of the producing country since
these companies do not want to show that balls they deliver in the US are being
produced in Asia, “Not only is our quality good enough; labour in India is cheap
enough to churn out a much less expensive product in the end. Yet, the main threat
to our industry comes from countries like Taiwan and China, who have already
cornered a chunk of world markets in tennis, badminton, and squash rackets. This is
primarily because of two reasons – slow response to our needs in tune with the
market requirements from the government and lack of infrastructure. And most
importantly, tags ‘Made in China’ or ‘Made in Taiwan’ are more acceptable in the
West than ‘Made in India’ or ‘Made in Pakistan’. One of the mottos of the Mayor group
has been to make ‘Made in India’ an acceptable label in the West. For that we stress
quality, timely delivery, and competent rates. Yet, a lot depends on perception value,
which in our case is sadly on the negative side, much owing to our government’s
stance over the years. Things might be improving, but the pace is very slow and as
our economy drifts towards a free market scenario supinely, it might just prove to be
too little too late in the end,” says Rajesh.
Today, Mayor group is sitting pretty as its competitors, Soccer International
Sakay Trades, Savi, Wasan, Cosco, Nivia and Spartan are only trying to catch up in
the inflatables category. With 1.2 million dozen golf balls, Mayor is way ahead of its
competitors. The company is planning to enhance its manufacturing capacity to 1.5
million dozen golf next fiscal. With approval from the world’s two top golf associations
– the US PGA and RNA of Scotland, demand for its product is not a problem, the
company’s senior marketing officials point out. With the markets in Mayor’s current
export destinations – Europe, North America, Australia, and Nw Zealand – all set to
expand in the coming years after the present slump, Mayor wants to expand its
sports goods business that caters to 60 per cent of its overall exports. Though 40 per
cent of exports come from house ware manufactured in Delhi and Mumbai, with
export centres in the same countries for its sports goods, just about maintaining this
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INDIAN SCHOOL OF MANAGEMENT AND STUDIES
SUB: INTERNATIONAL BUSINESS MAX MARKS: 100
business at its present state, and concerning entirely on sports goods is what the
mayors are intent on.
With nearly 2000 skilled workforce; quality certification from ISO 9001:2000
and ISO 14001: 2004; and having spread to more than 40 countries, Mayor and
Company is obviously sitting pretty.
Questions
1. What routes of globalization has the Mayor group chosen to go global? What
other routes could it have taken?
2. What impediments are coming in the Mayor group’s way becoming a major
and active player in international business?
3. Why is ‘Made in India’ not liked in foreign markets? What can be done to erase
the perception?
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INDIAN SCHOOL OF MANAGEMENT AND STUDIES
SUB: INTERNATIONAL BUSINESS MAX MARKS: 100
CASE II
ARROW AND THE APPAREL INDUSTRY
Ten years ago, Arvind Clothing Ltd., a subsidery of Arvind Brands Ltd., a
member of the Ahmedabad based Lalbhai Group, signed up with the 150-year old
Arrow Company, a division of Cutlet Peabody & Co. Inc., US, for licensed manufacture
of Arrow shirts in India. What this brought to India was not just another premium
dress shirt brand but new manufacturing philosophy to its garment industry which
combined high productivity, stringent in-line quality control, and a conducive factory
ambience.
Arrow’s first plant, with a 55,000 sq. ft. area and capacity to make 3,000 to
4,000 shirts a day, was established at Bangalore in 1993 with an investment of Rs. 18
crore. The conditions inside – with good lighting on the workbenches, high ceilings,
ample elbow room for each worker, and plenty of ventilation, were a decided contrast
to the poky, crowded, and confined sweatshops characterizing the usual Indian
apparel factory in those days. It employed a computer system for translating the
designed shirt’s dimensions to automatically mark the master pattern for initial
cutting of the fabric layers. This was installed, not to save labour but to ensure cutting
accuracy and low wastage of cloth.
The over two-dozen quality checkpoints during the conversion of fabric to
finished shirt was unique to the industry. It is among the very few plants in the world
that makes shirts with 2 ply 140s and 3 ply 100s cotton fabrics using 16 to 18 stitches
per inch. In March 2003, the Bangalore plant could produce stain-repellant shirts
based on nanotechnology.
The reputation of this plant has spread far and wide and now it is loaded
mostly with export orders from renowed global brands such as GAR, Next, Espiri, and
the like. Recently the plant was identified by Tommy Hilfiger to make its brand of
shirts for the Indian market. As a result, Arvind Brands has had to take over four other
factories in Bangalore on wet lease to make the Arrow brand of garments for the
domestic market.
In fact, the demand pressure from global brands which want to out outscore
from Arvind Brands, is so great that the company has had to set up another large for
export jobs on the outskirts of Bangalore. The new unit of 75,000 sq. ft. has cost Rs.
16 crore and can turn out 8,000 to 9,000 shirts per day. The technical collaborates
are the renowned C&F Italia of Italy.
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INDIAN SCHOOL OF MANAGEMENT AND STUDIES
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Among the cutting edge technologies deployed here are a Gerber make CNC
fabric cutting machine, automatic collar and cuff stitching machines, pneumatic
holding for tasks like shoulder joining, threat trimming and bottom hemming, a
special machine to attach and edge stitch the back yoke, foam finishers which use air
and steam to remove creases in the finished garment, and many others. The stitching
machines in this plant can deliver up to 25 stitches per inch. A continuous monitoring
of the production process in the entire factory is done through a computerized
apparel production management system, which is hooked to every machine. Because
of the use of such technology, this plant will need only 800 persons for a capacity
which is three that of the first plant which employs 580 persons.
Exports of garments made for global brands fetched Arvind Brands over Rs. 60
crore in 2002, and this can double in the next few years, when the new factory goes
on full stream. In fact, with the lifting of the country-wise quota regime in 2005, there
will be a surge in demand for high quality garments from India and Arvind is already
considering setting up two more such high tech export-oriented factories.
It is not just in the area of manufacture but also retailing that the arrow brand
brought a wind of change on the Indian scene. Prior to its coming, the usual Indian
shirt shop used to be a clutter of racks with little by way of display. What Arvind
Brands did was to set up exclusive showrooms for Arrow shirts in which the functional
was combined with the aesthetic. Stuffed racks and clutter were eschewed. The
products were displayed in such a manner that the customer could spot their qualities
from a distance. Of course, today this has become standard practice with many other
brands in the country, but Arrow showed the way. Arrow today has the largest
network of 64 exclusive outlets across India. It is also present in 30 retail chains. It
branched into multi-brand outlets in 2001, and is present in over 200 select outlets.
From just formal dress shirts in the beginning, the product range of Arvind
Brands has expanded in the last ten years to include casual shirts, T-shirts, and
trousers. In the pipeline are light jackets and jeans engineered for the middle age
paunch. Arrow also tied up with the renowed Italian designer, Renato Grande, who
has worked with names like Versace and Marlboro, to design its Spring / Summer
Collection 2003. The company has also announced its intention to license the Arrow
brand for other lifestyle accessories like footwear, watches, undergarments,
fragrances, and leather goods. According to Darshan Mehta, President, Arvind Brands
Ltd., the current turnover at retail price of the Arrow brand in India is about Rs. 85
crore. He expects the turnover to cross Rs. 100 crore in the next few years, of which
about 15 per cent will be from the licensed non-clothing products.
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INDIAN SCHOOL OF MANAGEMENT AND STUDIES
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In 2005, Arvind Brands launched a major retail initiative fir all its brands.
Arvind Brands licensed brands (Arrow, Lee and Wrangler) had grown at a healthy 35
per cent rate in 2004 and the company planned to sustain the growth by increasing
their retail presence. Arvind Brands also widened the geographical presence of its
home-grown brands, such as Newport and Ruf-n-Tuf, targeting small towns across
India. The company planned to increase the number of outlets where its domestic
brands would be available, and draw in new customers for readymades. To improve
its presence in the high – end market, the firm started negotiating with an
international brand and is likely to launch the brand.
The company has plans to expand its retail presence of Newport Jeans, from
1200 outlets across 480 towns to 3000 outlets covering 800 towns.
For a company ranked as one of the world’s largest manufacturers of denim
cloth and owners of world famous brands, the future looks bright certain for Arvind
Brands Ltd.
Company Profile
Name of the Company : Arvind Mills
Year of Establishments : 1931
Promoters : Three brothers – Katurbhai, Narottam Bhai and
Chimnabhai
Divisions : Arvind Mills was spilt in 1993 into three units –
textiles, telecom and garments. Arvind Brands Ltd.
(textile unit) is 100 per cent subsidiary of Arvind
Mills.
Growth Strategy : Arvind Mills has grown through buying – up of sick
units, going global and acquisition of Germanand
US brand names.
Questions
1. Why did Arvind Mills choose globalization as major route to achieve
growth when domestic market was huge?
2. Hoe does lifting of Country-wise quota regime’ help Arvind Mills?
3. What lessons can other Indain business learn from the experience of
Arvind Mills?
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INDIAN SCHOOL OF MANAGEMENT AND STUDIES
SUB: INTERNATIONAL BUSINESS MAX MARKS: 100
CASE III
AT THE RECEIVING END !
Spread over 121 countries with 30,000 restaurants, and serving 46 million customers
each day with the help of more than 400,000 employees, the reach of McDonald’s is
amazing. It all started in 1948 when two brothers, Richard and Maurice ‘Mac’
McDonald, built several hamburger stands, with golden arches in southern California.
One day a traveling salesman, Ray Kroc, came to sell milkshake mixers. The
popularity of their $O. 15 hamburgers impressed him, so he bought the world
franchise rights from them and spread the golden arches around the globe.
McDonald’s depends on its overseas restaurants for revenue. In fact, 60 percent of its
revenues are generated outside of the United States. The key to the company’s
success is its ability to standardize the formula of quality, service, cleanliness and
value, and apply it everywhere.
The company, well known for its golden arches, is not the world’s largest company.
Its system wide sales are only about one-fifth of Exxon Mobil or Wal-Mart stores.
However, it owns one of the world’s best known brands, and the golden arches are
familiar to more people than the Christian cross. This prominence, and its conquest of
global markets, makes the company a focal point for inquiry and criticism.
McDonald is a frequent target of criticism by anti-globalization protesters. In France, a
pipe-smoking sheep farmer named Jose Bove shot to fame by leading a campaign
against the fast food chain. McDonald’s is a symbol of American trade hegemony and
economic globalization. Jose Bove organized fellow sheep farmers in France, and the
group led by him drove tractors to the construction site of a new McDonald’s
restaurants and ransacked it. Bove was jailed for 20 days, and almost overnight an
international anti-globalisation star was borne. Bove, who resembles the irrelevant
French comic book hero Asterix, traveled to Seattle in 1999, as part of the French
delegation to lead the protest against commercialization of food crops promoted by
the WTO. Food, according to him, is too vital a part of life to be trusted to the
vagaries of the world trade. In Seattle, he led a demonstration in which some ski-
masked protestors transhed at McDonald’s/ As Bove explained, his movement was for
small farmers against industrial farming, brought about by globalization. For them,
McDonald’s was a symbol of globalization, implying the standardization of food
through industrial farming. If this was allowed to go on, he said, there would no
longer be need for farmers. “For us”, he declared, “McDonald’s is a symbol of what
WTO and the big companies want to do with the world”. Ironically, for all of Bove’s
fulminations against McDonald’s, the fast food chain counts its French operations
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among its most profitable in 121 countries. As employer of about 35,000 workers, in
2006, McDonald’s was also one of France’s biggest foreign employers.
Bove’s and his followers are not the only critics of McDonald’s. Leftists, anarchists,
nationalists, farmers, labor unions, environmentalists, consumer advocates,
protectors of animal rights, religious orders and intellectuals are equally critical of the
fast food chain. For these and others, McDonald’s represents an evil America. Within
hours after US bombers began to pound Afghanistan in 2001, angry Pakistanis
damaged McDonald’s restaurants in Islamabad and an Indonesian mob burned an
American flag.
McDonald entered India in the late 1990s. On its entry, the company encountered a
unique situation. Majority of the Indians did not eat beef but the company’s
preparations contained cow’s meat nor could the company use pork as Muslims were
against eating it. This left chicken and mutton. McDonald’s came out with ‘Maharaja
Mac’, which is made from mutton and ‘McAloo Tikki Burger’ with chicken potato as
the main input. Food items were segregated into vegetarian and non-vegetarian
categories.
Though it worked for sometimes, this arrangement did not last long. In 2001,
three Indian businessmen settled in Seattle sued McDonald’s for fraudulently
concealing the existence of beef in its French fries. The company admitted its guilt of
mixing miniscule quantity of beef extract in the oil. The company settled the suit for
$10 million and tendered an apology too. Further, the company pledged to label the
ingredients of its food items, and to find a substitute for the beef extract used in its
oil.
McDonald’s succeeded in spreading American culture in the East Asian
countries. In Hong Kong and Taiwan, the company’s clean restrooms and kitchens
set a new standard that elevated expectations throughout those countries. In Hong
Kong, children’s birthdays had traditionally gone unrecognized, but McDonald’s
introduced the practice of birthday parties in its restaurants, and now such parties
have become popular among the public. A journalist set forth a ‘Golden Arches
Theory of Conflict Prevention’ based on the notion that countries with McDonald’s
restaurants do not go to war with each other. A British magazine, The Economist,
paints an yearly ‘Big Mac Index’ that uses the price of a Big Mac in different foreign
currencies to access exchange rate distortions.
Questions :
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INDIAN SCHOOL OF MANAGEMENT AND STUDIES
SUB: INTERNATIONAL BUSINESS MAX MARKS: 100
1. What lessons can other MNCs learn from the experience of
McDonald’s?
2. Aware of the food habits of Indians, why did McDonald’s err in mixing
beef extract in the oil used for fries?
3. How far has McDonald’s succeeded in strategizing and meeting local
cultures and needs?
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INDIAN SCHOOL OF MANAGEMENT AND STUDIES
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CASE IV
BPO-BANE OR BOON ?
Several MNCs are increasingly unbundling or vertical disintegrating their activities.
Put in simple language, they have begun outsourcing (also called business process
outsourcing) activities formerly performed in-house and concentrating their energies
on a few functions. Outsourcing involves withdrawing from certain stages/activities
and relaying on outside vendors to supply the needed products, support services, or
functional activities.
Take Infosys, its 250 engineers develop IT applications for BO/FA (Bank of America).
Elsewhere, Infosys staffers process home loans for green point mortgage of Novato,
California. At Wipro, five radiologists interpret 30 CT scans a day for Massachusetts
General Hospital.
2500 college educated men and women are buzzing at midnight at Wipro
Spectramind at Delhi. They are busy processing claims for a major US insurance
company and providing help-desk support for a big US Internet service provider – all
at a cost upto 60 percent lower than in the US. Seven Wipro Spectramind staff with
Ph.Ds in molecular biology sift through scientific research for western pharmaceutical
companies.
Another activist in BPO is Evalueserve, headquartered in Bermuda and having main
operations near Delhi. It also has a US subsidiary based in New York and a marketing
office in Australia to cover the European market. As Alok Aggarwal (co-founder and
chairman) says, his company supplies a range of value – added services to clients
that include a dozen Fortune 500 companies and seven global consulting firms,
besides market research and venture capital firms. Much of its work involves dealing
with CEOs, CFOs, CTOs, CLOs and other so-called C-level executives.
Evalueserve provides services like patent writing, evaluation and assessment of their
commercialization potential for law firms and entrepreneurs. Its market research
services are aimed at top-rung financial service firms, to which it provides analysis of
investment opportunities and business plans. Another major offering is multilingual
services. Evalueserve trains and qualifies employees to communicate in Chinese,
Spanish, German, Japanese and Italian, among other languages. That skill set has
opened market opportunities in Europe and elsewhere, especially with global
corporations.
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ICICI Infotech Services in Edison, New Jersey, is another BPO services provider that is
offering marketing software products and diversifying into markets outside the US.
The firm has been promoted by $2-billion ICICI Bank, a large financial institution in
Mumbai that is listed on the New York Stock Exchange.
In its first year after setting up shop in March 1999, ICICI Infotech spent $33 million
acquiring two information technology services firms in New Jersy – Object Experts and
lvory Consulting – and Command Systems in Connecticut. These acquisitions were to
help ICICI Infotech hit the ground in the US with a ready book of contracts. But it soon
found US companies increasingly outsourcing their requirements to offshore
locations, instead of hiring foreign employees to work onsite at their offices. The
company found other native modes for growth. It has started marketing its products
in banking, insurance and enterprise source planning among others. It has ear-------
$10 million for its next US market offensive, which would go towards R & D and back-
end infrastructure support, and creating new versions of its products to comply with
US market requirements. It also has a joint venture – Semantik Solutions GmbH in
Berlin, Germany with the Fraunhofer Institute for Software and Systems Engineering,
which is based in Berlin, Germany with the Fraunhofer Institute for Software and
Systems Engineering, which is based in Berlin and Dortmund, Germany, Fraunhofer is
a leading institute in applied research and development with 200 experts in software
engineering and evolutionary information.
A relatively late entrant to the US market, ICICI Infotech started out with plain vanilla
IT services, including operating call centers. As the market for traditional IT services
started weakening around mid-2000, ICICI Infotech repositioned itself as a “Solutions”
firm offering both products and services. Today, it offers bundled packages of
products and services in corporate and retail banking and insurance, among other
areas. The new offerings include data center and disaster recovery management and
value chain management services.
ICICI Infotech’s expansion into new overseas markets has paid off. Its $50 million
revenue for its latest financial year ending March 2003 has the US operations
generating some $15 million, while the Middle East and Far East markets brought in
another $9 million. It now boasts more than 700 customers in 30 countries, including
Dow Jones, Glaxo – Smithkline, Panasonic and American Insurance Group.
The outsourcing industry is indeed growing from strength. Though technical support
and financial services have dominated India’s outsourcing industry, newer fields are
emerging which are expected to boost the industry many times over.
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Outsourcing of human resource services or HR BPO is emerging as big opportunity for
Indian BPOs with global market in this segment estimated at $40-60 billion per
annum. HR BPO comes to about 33 percent of the outsourcing revenue and India has
immense potential as more than 80 percent of Fortune 1000 companies discuss
offshore BPO as a way to out costs and increase productivity.
Another potential area is ITES/BPO industry. According to a NASSCOM Survey, the
global ITES/BPO industry was valued at around $773 billion during 2002 and it is
expected to grow at a compounded annual growth rate of nine percent during the
period 2002-06. NASSCOM lists the major indicators of the high growth potential of
ITES/BPO industry in India as the following :
During 2003-04, The ITES/BPO segment is estimated to have achieved a 54 percent
growth in revenues as compared to the previous year. ITES exports accounted for
$3.6 billion in revenues, up from $2.5 billion in 2002-03. The ITES-BPO segment also
proved to be a major opportunity for job seekers, creating employment for around
74,400 additional personnel in India during 2003-04. The number of Indians working
for this sector jumped to 245,500 by March 2004. By the year 2008, the segment is
expected to employ over 1.1 million Indians, according to studies conducted by
NASSCOM and McKinsey & Co. Market research shows that in terms of job creation,
the ITES-BPO industry is growing at over 50 percent.
Legal outsourcing sector is another area India can look for Legal transcription
involves conversion of interviews with clients or witnesses by lawyers into documents
which can be presented in courts. It is no different from any other transcription work
carried out in India. The bottom-line here is again cheap service. There is a strong
reason why India can prove to be a big legal outsourcing industry.
India, like the US, is a common-law jurisdiction rooted in the British legal tradition.
Indian legal training is conducted solely in English. Appellate and Supreme Court
proceedings in India take place exclusively in English. Indian legal opinions are
written exclusively in English. Due to the time-zone differences, night time in the US
is daytime in India which means that clients get 24 hour attention, and some projects
can be completed overnight. Small and mid-sized business offices can solve staff
problems as the outsourced lawyers from India take on the time consuming labour
intensive legal research and writing projects. Large law firms also can solve problems
of overstaffing by using the on-call lawyers.
Research firms such as Forrester Research, predict that by 2015, more than 489,000
US lawyer jobs, nearly eight percent of the field, will shift abroad.
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Many more new avenues are opening up for BPO services providers. Patent writing
and evaluation services are markets set to boom. Some 200,000 patent applications
are written in the western world annually, making for a market size of between $5
billion and $7 billion. Outsourcing patent writing service could significantly lower the
cost of each patent application, now anywhere between $12,000 and $15,000 apiece
– which help expand the market.
Offshoring of equity research is another major growth area. Translation
services are also becoming a big Indian plus. India produces some 3,000 graduates in
German each year, which is more than in Switzerland.
Though going is good, the Indian BPO services providers cannot afford to be
complacent, Phillippines, Mexico and Hungary are emerging as potential offshore
locations. Likely competitor is Russia, although the absence of English speaking
people there holds the country back. But the dark horse could be South Africa and
even China.
BPO is based on sound economic reasons. Outsourcing helps gain cost
advantage. If an activity can be performed better or more cheaply by an outside
supplier, why not outsource it ? Many PC makers, for example, have shifted from in-
house assembly to utilizing contract assemblers to make their PCs. CISCO outsources
all productions and assembly of its routers and switching equipment to contract
manufacturers that operate 37 factories, all linked via the Internet.
Secondly, the activity (outsourced) is not crucial to the firm’s ability to gain
sustainable competitive advantage and won’t hollow out its core competence,
capabilities, or technical knowhow. Outsourcing of maintenance services, data
processing, accounting, and other administrative support activities to companies
specializing in these services has become common place. Thirdly, outsourcing
reduces the company’s risk exposure to changing technology and / or changing buyer
preferences.
Fourthly, BPO streamlines company operations in ways that improve
organizational flexibility, cut cycle time, speedup decision making and reduce
coordination costs. Finally, outsourcing allows a company to concentrate on its crore
business and do what it does best. Are Indian companies listening? If they listen, BPO
is a boon them and not a bane.
Questions
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INDIAN SCHOOL OF MANAGEMENT AND STUDIES
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1. Which of the theories of International trade can help Indian services
providers gain competitive edge over their competitors?
2. Pick up some Indian services providers. With the help of Michael
Porter’s diamond, analyze their strengths and weaknesses as active
players in BPO.
3. Compare this case with the case given at the beginning of this
chapter. What similarities and dissimilarities do you notice? Your
analysis should be based on the theories explained in this chapter.
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CASE V
THE SAGA CONTINUES
It was the talk of the town in Bangalore during the late 1970s and early 1980s. The
plant was coming up on the Bangalore – Yelahanka Road, about 20 km from the city.
Everything the people over three did became a folklore. The buildings were huge with
wonderful architecture, beautifully built with wide roads and huge spaces. Should a
situation demand, the entire plant could be dismantled, bundled up, loaded into
trucks and ferried to other places. Lighting inside the building had to be seen to be
believed. Interiors had to be seen to be believed. Washrooms, stores, reception,
canteen, healthcare, had to be seen to be believed. It had never happened
elsewhere. It was amazing, the boss was not addressed as Sir, he was called Mr. ----
and so ! The yellow painted buses on the city roads made a delightful sight. Legends
were fold about the two gentlemen who founded the company.
An interesting story is told about how one of the surviving founders (Larsen who lived
till 2003) visited the Bangalore plant once a year, he stayed in a hotel on his own,
hired his own cab, went to the plant and greeted every employee, from the top brass
down to the last person in the hierarchy. Story is also told about how, on one such
visit Larsen went to the reception and asked for permission to enter the plant. Not
knowing who he was, the young lass in reception room made him wait for half-an-
hour. By luck, someone recognized him.
A budding author captured all these and many more in his first book, which became a
big hit with all the teachers and students in different colleges buying and reading it.
If cannot be anything other than L & T, the huge engineering and construction multi-
plant organization, founded in 1938 by two Danish engineers, Henning Holck – Larsen
and Soren Kristin Toubro.
Henning Holck – Larsen and Soren Kristin Toubro, school – mates in Denmark, would
not have dreamt, as they were learning about India in history classes that they would,
one day, create history in that land. In 1938, the two friends decided to forgo the
comforts of working in Europe and started their own operation in India. All they had
was a dream. And the courage to dare. Their first office in Mumbai (Bombay) was so
small that only one of the partners could use the office at a time! Today, L & T is one
of India’s biggest and best known industrial organizations with reputation for
technological excellence, high quality of products and services and strong customer
orientation.
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INDIAN SCHOOL OF MANAGEMENT AND STUDIES
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As on today, L & T is a 62 business conglomerate with turnover of Rs. 18,363 crore
(2006-07), with the script commanding Rs. 2400 in the bourses.
No, L & T is not sitting pretty. It want to hit Rs. 30,000 crore turnover mark by 2010
and is busy restructuring, sniffing new pastures, grooming new talent and projecting
the new company credo – “It’s all about Imagineering.” With the sole idea of creating
several MNCs within, with footprints across nations, L & T is shedding the old
economy and embracing the emergent opportunities and challenges.
Stagnant Revenues and Low Margins
Not everything went the L & T way.
In the late nineties, the macro environment was ----- inspiring with stagnant revenues
and low margins, and L & T’s core strength, its engineers, were being constantly
weaned away by the fast-growing software sector. So, the general comment around
the bourses was about the credibility of the company, ‘L & T is a, good company but
its stock price, for some reason or the other, is fixed at the Rs. 140-210 band. So the
company had to change by keeping its core intact. As s senior executive remarks. “L
& T was perceived to be un –sexy and we had to create a new buzz around the
campuses.” The metamorphosis must echo through a whimper, not a bang. Even
before the company divested its cement business in 2003, which accounted for 25%
of its total sales, there were years of incremental and low visibility organizational
moves towards a new L & T.
At a 52-week high of Rs. 2400, the L & T scrip today looks dapper, a far cry from the
nineties when the stock price was in a state of flux. Much of the change started as a
ripple way back in 1999 when Naik took over as the CEO. He visited employees at all
levels across the organization and asked them what it took to transform the
company. The insights were mapped and implemented. “None of our employees
thought that we build shareholder value. They thought we build monuments,” the
chairman reminisces. The focus on people became stronger and formed the basis of
restructuring. It became the first old economy company to provide stock options to its
employees.
When Naik came to the helm, he set upon himself a 90 – day transformational
agenda. Portfolios were reviewed and a vision clearly chalked out. He drew up a
simple, brief, “ L & T has to be a multinational company and it has to deliver
shareholder value at any cost. At the end of 90 days, between July 22 and July 24,
1999, the company launched Project Blue Chip, which essentially fast – tracked
projects. The moot point was to complete all projects by February of the new
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INDIAN SCHOOL OF MANAGEMENT AND STUDIES
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millennium. Strategy formation teams were formed, portfolios reviewed and
structures were optimized. Young leadership was brought to the fore and the
business streamlining process kicked in.
Hiving off from 1999-2001, L & T went about debottle- necking its cement plants.
They were modernized and capitalized were raised from 12 million tones to 16 million
tones annually, with minimum costs. The mantra really was to grow the business and
then divest it as cement fell in the non-core category.
So, in September 2003, L & T sold its cement business to the Aditya Birla Group,
which resulted in the company’s Economic Value Add (EVA), an
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INDIAN SCHOOL OF MANAGEMENT AND STUDIES
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SUMMARY
Technological environment wields considerable influence on international
business. Technology is systematic application of knowledge to practical tasks.
Three features of technology are conspicuous, change, widespread effects and
self-reinforcement.
Technology may be structured into different categories, for example, state of
art, proprietary, supporting, and the like.
Technology management involves its awareness, acquisition, adaption,
advancement and abandonment phases.
Impact of technology can be studied under three heads - impact on society,
impact on economy and plant level implications. Major aspect of plant level
implications relates to the management of technology transfers.
QUESTIONS
1. What is technology? How does it differ from science?
2. Describe the different phases of technology management?
3. Bring out the impact of technology on: (a) Society, (b) Economy, and
(c) A plant.
4. What is technology transfer? What are the directions of such transfers?
5. Bring out the stages in technology transfer.
6. Explain the issues involved in international technology transfers.
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INDIAN SCHOOL OF MANAGEMENT AND STUDIES
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CASE VI
THE ABB PBS JOINT VENTURE IN OPERATION
ABB Prvni Brnenska Strojirna Brno, Ltd. (ABB-PBS), Czechoslovakia was a joint
venture in which ABB has a 67 per cent stake and PBS a.s. has a 33 per cent stake.
This PBS share was determined nominally by the value of the land, plant and
equipment, employees, and goodwill, ABB contributed cash and specified
technologies and assumed some of the debt of PBS. The new company started
operations on April 15, 1993.
Business for the joint venture in its first two full years was good in most
aspects. Orders received in 1994, the first full year of the joint venture's operation,
were higher than ever in the history of PBS. Orders received in 1995 were 21/2 times
those in 1994. The company was profitable in 1995 and ahead of 1994s results with a
rate of return on assets of 2.3 per cent and a rate of return on sales of 4.5 per cent.
The 1995 results showed substantial progress towards meeting the joint
venture's strategic goals adopted in 1994 as part of a five-year plan. One of the goals
was that exports should account for half of the total orders by 1999. (Exports had
accounted for more than a quarter of the PBS business before 1989, but most of this
business disappeared when the Soviet Union collapsed), In 1995 exports increased as
a share of total orders to 28 per cent up from 16 per cent the year before.
The external service business, organized and functioning as a separate
business for the first time in 1995, did not meet expectations. It accounted for five
per cent of all orders and revenues in 1995, below the 10 per cent goal set for it. The
retrofitting business, which was expected to be a major part of the service business,
was disappointing for ABB-PBS, partly because many other small companies began to
provide this service in 1994, including some started by former PBS employees who
took their knowledge of PBS-built power plants with them. However, ABB-PBS
managers hoped that as the company introduced new technologies, these former
employees would gradually lose their ability to perform these services, and the
retrofit and repair service business would return to ABB-PBS.
ABB-PBS dominated the Czech boiler business with 70 per cent of the Czech
market in 1995, but managers expected this share to go down in the future as new
domestic and foreign competitors emerged. Furthermore, the west European boiler
market was actually declining because environmental laws caused a surge of
retrofitting to occur in the mid-1980s, leaving less business in the 1990s. Accordingly
ABB-PBS boiler orders were flat in 1995.
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INDIAN SCHOOL OF MANAGEMENT AND STUDIES
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Top managers at ABB-PBS regarded business results to date as respectable,
but they were not satisfied with the company's performance. Cash flow was not as
good as expected. Cost reduction had to go further. "The more we succeed, the more
we see our shortcomings", said one official.
Restructuring
The first round of restructuring was largely completed in 1995, the last year of
the three-year restructuring plan. Plant logistics, information systems, and other
physical capital improvements were in place. The restructing included :
Renovating and reconstructing workshops and engineering facilities
Achieving ISO 9001 for all four ABB-PBS divisions (awarded in 1995)
Transfer of technology from ABB (this was an ongoing project)
Installation of an information system
Management training, especially in total quality assurance and English language
Implementing a project management approach.
A notable achievement of importance of top management in 1995 was a 50
per cent increase in labour productivity, measured as value added per payroll crown.
However, in the future ABB-PBS expected its wage rates to go up faster than west
European wage rates (Czech wages were increasing about 15 per cent per year) so it
would be difficult to maintain the ABB-PBS unit cost advantage over west European
unit cost.
The Technology Role for ABB-PBS
The joint venture was expected from the beginning to play an important role
in technology development for part of ABB's power generation business worldwide.
PBS a.s. had engineering capability in coal-fired steam boilers, and that capability
was expected to be especially useful to ABB as more countries became concerned
about air quality. (When asked if PBS really did have leading technology here, a boiler
engineering manager remarked, "Of course we do. We burn so much dirty coal in this
country, we have to have better technology").
However, the envisioned technology leadership role for ABB-PBS had not been
realised by mid-1996. Richard Kuba, the ABB-PBS managing director, realised the
slowness with which the technology role was being fulfilled, and he offered his
interpretation of events :
"ABB did not promise to make the joint venture its steam technology leader.
The main point we wanted to achieve in the joint venture agreement was for ABB-PBS
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INDIAN SCHOOL OF MANAGEMENT AND STUDIES
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to be recognised as a full-fledged company, not just a factory. We were slowed down
on our technology plans because we had a problem keeping our good, young
engineers. The annual employee turnover rate for companies in the Czech Republic is
15 or 20 per cent, and the unemployment rate is zero. Our engineers have many
other good entrepreneurial opportunities. Now we've begun to stabilise our
engineering workforce. The restructuring helped. We have better equipment and a
clean and safer work environment. We also had another problem which is a good
problem to have. The domestic power plant business turned out to be better than we
expected, so just meeting the needs of our regular customers forced some
postponement of new technology initiatives."
ABB-PBS had benefited technologically from its relationship with ABB. One
example was the development of a new steam turbine line. This project was a
cooperative effort among ABB-PBS and two other ABB companies, one in Sweden and
one in Germany. Nevertheless, technology transfer was not the most important early
benefit of ABB relationship. Rather, one of the most important gains was the
opportunity to benchmark the joint venture's performance against other established
western ABB companies on variables such as productivity, inventory, and receivables.
Questions
1. Where does the joint venture meet the needs of both the partners?
Where does it fall short?
2. Why had ABB-PBS failed to realized its technology leadership?
3. What lessons one can draw from this incident for better management
of technology transfers?
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INDIAN SCHOOL OF MANAGEMENT AND STUDIES
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CASE VII
PERU
Peru is located on the west coast South America. It is the third largest nation of the
continent (after Brazil and Argentina), and covers almost 500,000 square miles
(about 14 per cent of the size of the United States). The land has enormous contrasts,
with a desert (drier than the Sahara), the towering snow-capped Andes mountains,
sparking grass-covered plateaus, and thick rain forests. Peru has approximately 27
million people, of which about 20 per cent live in Lima, the capital. More Indians (one
half of the population) live in Peru than in any other country in the western
hemisphere. The ancestors of Peru’s Indians were the famous Incas, who built a great
empire. The rest of the population is mixed and a small percentage is white. The
economy depends heavily on agriculture, fishing, mining, and services. GDP is
approximately $115 billion and per capita income in recent years has been around
$4, 300. In recent years the economy has gained some relative and multinationals
are now beginning to consider investing in the country.
One of these potential investors is a large New York based that is considering
a $25 million loan to the owner of a Peruvian fishing fleet. The owner wants to
refurbish the fleet and add one more ship.
During the 1970s, the Peruvian government nationalized a number of
industries and factories and began running them for the profit of the state. In most
cases, these state-run ventures became disasters. In the late 1970s, the fishing fleet
owner was given back his ships and allowed to operate his business as before. Since
then, he has managed to remain profitable, but the biggest problem is that his ships
are getting old and he needs and influx of capital to make repairs and add new
technology. As he explained it to the New York banker: “Fishing is no longer just an
art. There is a great deal of technology involved. And to keep costs low and be
competitive on the world market, you have to have the latest equipment for both
locating as well as catching and then loading and unloading the fish.”
Having reviewed the fleet owner’s operation, the large multinational bank
believers that the loan is justified. The financial institution is concerned, however,
that the Peruvian government might step in during the next couple of years and
again take over the business. If this were to happen it might take and additional
decade for the loan to be repaid. If the government were to allow the fleet owner to
operate the fleet the way he has over the last decade, the loan could be repaid within
seven years.
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INDIAN SCHOOL OF MANAGEMENT AND STUDIES
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Right now, the bank is deciding on the specific terms of the agreement. Once
these have been worked out, either a loan officer will fly down to Lima and close the
deal or the owner will be asked to come to New York for the signing. Whichever
approach is used, the bank realizes that final adjustments in the agreement will have
to be made on the spot. Therefore, if the bank sends a representative to Lima, the
individual will have to have the authority to commit the bank to specific terms. These
final matters should be worked out within the next ten days.
Questions
1. What are some current issues facing Peru? What is the climate for
doing business in Peru today?
2. What type of political risks does this fishing company need to
evaluate? Identify and describe them.
3. What types of integrative and protective and defensive
techniques can the bank use?
4. Would the bank be better off negotiating the loan in New York or
in Lima? Why?
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