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
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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.
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