MODULE: GLOBAL BUSINESS MANAGEMENT QUESTION ONE [50] Read the following and answer the questions that follow: The global automotive industry is one of the largest and most internationalised business...

MODULE: GLOBAL BUSINESS MANAGEMENT

QUESTION ONE [50]

Read the following and answer the questions that follow:

The global automotive industry is one of the largest and most internationalised business

sectors. There are 17 major global automotive companies producing more than one

million cars a year. Hyundai Motor Company is South Korea?s number one carmaker and

the tenth largest in the world. It sells vehicles in over 190 countries, producing about a

dozen car and minivan models, plus trucks, buses, and other commercial vehicles.

Popular models in the USA are the Accent and Sonata, while exports to Europe and

Asia include the GRD and Equus. In Africa, Hyundai is the bestselling car brand in

Egypt, Libya, Sudan, Angola, Mozambique and the Seychelles. Recently in South Africa,

Hyundai?s Elantra model was included among the 10 finalists for the 2012 South African

Car of the Year award, proving its popularity as well as its superior performance. In

2008, during the global financial crisis, Hyundai earned a profit of $1.3 billion – among

the best in the global auto industry.

During the recent global financial crisis, global automotive sales declined to near-record

lows. Automotive industry profits suffered due to significant excess production capacity.

Although there is capacity to produce 80 million cars worldwide, total global demand fell

to only about 60 million a year. This led to consolidations and divestitures, including

those between Ford and Land Rover; Jaguar and Volvo; Fiat and Chrysler; and General

Motors and Opel; amongst others. Consistent with new trade theory, the requisite scale

compels automakers to target world markets, where they can achieve economies of

scale.

Despite its large size, the car market in South Korea (Korea) is insufficient to sustain

indigenous automakers like Hyundai and Kia. Korea holds numerous competitive

advantages in the car industry. The country is a world centre of new technology

development. Korea has abundant, cost-effective knowledge workers who drive

innovations in design, features, production, and product quality. The country also has a

high savings rate, with massive inward FDI, which ensures a ready supply of capital for

carmakers to fund R&D and other ventures. Collectively Korea?s abundance of

production factors in cost-effective labour, knowledge workers, high technology, and

capital represent key location-specific advantages.

Korean consumers are demanding, so car makers take great pains to produce high

quality automobiles. Intense rivalry in the domestic auto industry ensures that car

makers and auto parts producers improve products continuously. The Korean economy

is dominated by several conglomerates, called „chaebols?. They include Hyundai,

Samsung, LG and SK and account for about 40% of Korea?s GDP and exports.

In recent years, the Korean government imposed stringent accounting controls on many

of these firms. The government cooperates closely with the business sector, protecting

some industries, ensuring funds for others, and sponsoring others. The government

promoted imports of raw materials and technology at the expense of consumer goods

and encouraged savings and investment over consumption. Partly due to these efforts,

Korea is home to a substantial industrial cluster for the production of cars and car parts.

The nation benefits from the presence of numerous suppliers and manufacturers in the

global automotive industry.

In past years, Hyundai also benefited from a weak Korean won (Korea?s currency),

making prices for Hyundai cars cheaper for customers in Europe and the United States

who buy imported cars in their local currencies. Hyundai owes much of its success to

favourable international exchange rates.

Hyundai was founded in 1947 by Chung Ju-Yung, a visionary entrepreneur from a

peasant background. By the 1970s, the firm had begun an aggressive effort to develop

engineering capabilities and new designs in the auto industry. In the 1980s, Hyundai

began exporting the Excel, an economy car priced at $4,995, to the United States. An

instant success, Excel exports grew to 250,000 units per year. But the Excel suffered

from quality issues and a weak dealer network. Buyer confidence waned in the late

1990s and Hyundai?s brand equity weakened. In response to complaints, Hyundai

initiated major quality improvement programmes and introduced a 10-year warranty

programme, unprecedented in the auto industry. The strategy was a major turning point

for the firm.

In 1997, Hyundai built a car factory in Turkey, giving the firm convenient access to key

markets in the Middle East and Europe. Next, Hyundai opened a plant in India and

within a few years became the country?s best selling brand of imported car. In 2002,

Hyundai launched a factory in China, doubling production, and is aiming for a 20% share

of the Chinese car market. The firm also partnered with Guangzhou Motor Group,

gaining entry to China?s huge commercial-vehicle market. In addition to gaining access

to low-cost, high-quality labour in emerging markets, Hyundai hopes its presence in local

showrooms will improve consumer awareness and drive new sales.

Hyundai uses FDI to develop key operations around the world. Management chooses

locations based on the advantages they bring to the firm. By 2006, Hyundai established

plants in Iran, Sudan, Taiwan, Vietnam, Venezuela, and numerous other countries.

Recently the firm opened plants in the USA states of Alabama and Georgia. Hyundai

also has R&D centres in Europe, Japan and North America. It has distribution centres

and marketing subsidiaries at various locations that deliver parts to its expanding base

of car dealers worldwide. Hyundai also has regional headquarters in Africa, Asia, Europe

and North America. To guarantee control over production and marketing, the firm has

internalised many of its operations.

To remain competitive, Hyundai employs inexpensive, high-quality labour. Engines,

tyres, and other key inputs are sourced from low-cost suppliers. The firm has entered

various collaborative ventures to cooperate in R&D, design, manufacturing, and other

value-adding activities. These allow Hyundai access to foreign partners? know-how,

capital, distribution channels, marketing assets, and the ability to overcome government-

imposed obstacles. For example, Hyundai partnered with Daimler-Chrysler to develop

new technologies and improve supply-chain management. Compared to Japanese or

Western rivals, Hyundai has superior cost advantages in the acquisition of high-quality

inputs.

While Japanese auto giants such as Toyota and Honda rely heavily on US sales for their

profits, Hyundai is more diversified. In 2008, the USA market accounted for only 14% of

Hyundai?s total sales, while China, India, Russia, and Latin America represented a

combined 35% of sales. Hyundai recently launched its first luxury model, the Genesis. It

was named the North American Car of the Year at the 2009 Detroit Auto Show, trumping

industry favourites like the Audi A4, Jaguar XF, and Cadillac CTS-V.

A recent marketing innovation is the "Assurance Programme" under which buyers can

return recently purchased cars if they lose their job within one year of purchase. The

programme even pays the customer?s lease payments for up to 90 days while the

customer searches for a new job. Owners who elect to keep their cars are not required

to reimburse Hyundai.

Like other carmakers, Hyundai has problems with excess capacity. In 2009, due to

unwanted inventory, the firm slowed production at its Alabama plant and laid off

hundreds of employees at regional headquarters in the USA. Hyundai cut production by

some 25% at plants in Korea. But the firm continues to launch new marketing campaigns

and replaced General Motors as the official automotive sponsor of the Academy Awards.

Hyundai has pursued internationalisation aggressively. While many global firms struggle

to stay afloat during a crisis, Hyundai is seeking to expand. Hyundai sees the crisis as

an opportunity, with plans to emerge even stronger. Hyundai has improved quality and

increased sales against all odds. Given its focus on quality, energy efficiency, cost

control, and customer satisfaction, perhaps Hyundai is the new standard bearer in the

global auto industry.

Cavusgil, Knight and Riesenberger (2012) International Business: The New Realities. Oxford University Press.

1.1 Discuss how the globalisation of markets and globalisation of production have

benefited Hyundai. (10)

1.2 Discuss Hyundai and its position in the global car industry in terms of Porter?s

diamond model. (15)

1.3 Explain the functions of the foreign exchange market, and discuss how

the exchange rate influenced Hyundai?s success within Europe and the

United States of America. (10)

1.4 Consistent with Dunning?s Eclectic Paradigm, describe the ownership-specific

advantages, location-specific advantages and internalisation advantages held

by Hyundai. (15)

QUESTION TWO [15]

Identify the components of culture and discuss the impact of culture on international

business

QUESTION THREE [15]

Dlamini-Zuma: Africa Must Work Together

The success of the African Union is dependent on the implementation of decisions made by

regional economic communities, AU chair Nkosazana Dlamini-Zuma said in a speech

prepared for delivery at the SADC summit in Mozambique.

"Therefore, a strong, dynamic and symbiotic relationship between the African Union

Commission and the regional economic communities is critical for the integration and

development of Africa."

Dlamini-Zuma said that only through the construction of sustainable infrastructure could inter

and intra-African trade succeed for the benefit of the continent's people.

"This in turn requires the development of common standards and the harmonisation of

legislation and other steps being taken within and between economic communities."

She said a united Africa would assist the people of the continent to deal with burning issues

such as climate change, food and water security, pandemics and the relationship between

healthy, educated populations and development; democracy and the empowerment of youth

and women.(
http://www.news24.com/Africa/
)

Read the following and answer the questions that follow:

If there is a lesson to be learnt from Naspers, it is that it pays not to put all your eggs into one basket. Having captivated local and international investors with its 337% growth since 1997 – from a market capitalisation of R3.5 billion to R11.8 billion – Naspers continues to prove why its rise has not been a fluke.

In 2009 alone, in a year when its local rivals and international counterparts were taking a beating in revenues, the media giant almost doubled both its market capitalisation (from R6.3 billion to R11 billion) and its share price (R156.50 to R292.56).

So why does this company thrive despite the recession? More than a decade ago, Naspers decided to diversify its interests from its predominantly print operation – with titles such as
Beeldand
Rapport– and become a multimedia company.

The idea: to hedge against the risk of depending on just one market, in this case, South Africa for revenue. The strategy has clearly worked. The company now owns print,pay-TV, Internet and technology assets in South Africa, India, Latin America, Asia, sub-Saharan Africa, and Eastern Europe.

Naspers was the only media company in 2009 to report revenue growth above 5%. Operating profit grew by 19% to R2.8 billion. Although more than 50% of its revenue comes from South Africa, driven by the evidently recession-proof pay-TV (MultiChoice accounts for 60%), income from its offshore subsidiaries is also growing rapidly.

Foreseeing the value in pay-TV, in 2007 Naspers bought out the 38% stake that media group Johnnic Communications (now Avusa) had in M-Net/Supersport for R3.3 billion. MultiChoice’s revenue has grown 15%, largely from subscription growth of 54%.

Adding to the numbers is MultiChoice’s growing penetration of the African continent, particularly in Nigeria, where it has about one million customers. Naspers has also defended its pay-TV turf from new competitors by offering specially packaged DStv bouquets for the various consumer segments.

But it is Naspers’s gamble on Tencent that has inspired confidence in the direction Naspers is taking. The company owns 10% of Tencent, China’s biggest Internet portal and the best performer on the Hong Kong Securities Exchange. Tencent’s strength is instant messaging. It owns over 80% of this market. In 2009, Tencent brought in 56% (R2.2 billion) of the R4.1 billion revenue of Naspers’s Internet division. Tencent’s core target market is the 15-35 age group, which is the biggest user of the Internet and all its offerings in China. This is not the case in Africa, where Naspers is exploring opportunities in mobile usage growth. It has launched mobile TV and owns 30% of Mxit.

Many credit Naspers meteoric rise To MD Koos Bekker (57), who took over the reins in 1997. A witty but private personality whose success has come mostly from his reliance on instinct. Naspers’s top management comprises mavericks who possess an appetite for calculated risks.

Although Naspers has been a growth story through the recession, it has not been immune to the downturn. Its revenue growth in 2011 of 6% was a shadow of the 22% recorded in 2010. Its print assets, housed under Media24, also took a knock from depressed advertising spend, forcing closure of a few titles. A number of staff members in the print division were also retrenched.

With a price to earnings ratio of 33.88 – higher than the sector’s 30.58 – Naspers may be considered an expensive buy, but investors can expect long-term rewards.Adapted from: Louw and Venter (2010) Strategic Management Developing Sustainability in Southern Africa 2ndedition. Oxford

1.1 Discuss the factors that affect the strategic choice(s) available to Naspers. (12)

1.2 Identify and discuss the various corporate strategies Naspers has pursued. (10)

1.3 Discuss the appropriateness of these strategies in terms of strategic intent and the long-term goals of Naspers. (8)

1.4 Discuss the characteristics of strategic leadership that Bekker would have displayed in implementing the various strategies at Naspers. (10)

A company has a competitive advantage over its rivals when its profitability is greater than the average profitability of all companies in its industry. It has a sustained competitive advantage when it is able to maintain above-average profitability over a number of years (Hill and Jones, 2009:77).

With reference to this, discuss the sources of competitive advantage and superior profitability and explain the link between strategy, competitive advantage and profitability.

3.1 Discuss the role of organisational culture in strategy implementation (10)

3.2 Discuss the reasons why companies enter into strategic alliances (10)

The diagnostic phase of change management is mainly a data gathering or research activity aimed at producing useful information upon which subsequent intervention decisions can be based

With reference to this, discuss the main aim(s) of organisational diagnosis and describe the steps in the diagnostic process.

Read the following and answer the questions that follow:

If there is a lesson to be learnt from Naspers, it is that it pays not to put all your eggs into one basket. Having captivated local and international investors with its 337% growth since 1997 – from a market capitalisation of R3.5 billion to R11.8 billion – Naspers continues to prove why its rise has not been a fluke.

In 2009 alone, in a year when its local rivals and international counterparts were taking a beating in revenues, the media giant almost doubled both its market capitalisation (from R6.3 billion to R11 billion) and its share price (R156.50 to R292.56).

So why does this company thrive despite the recession? More than a decade ago, Naspers decided to diversify its interests from its predominantly print operation – with titles such as
Beeldand
Rapport– and become a multimedia company.

The idea: to hedge against the risk of depending on just one market, in this case, South Africa for revenue. The strategy has clearly worked. The company now owns print,pay-TV, Internet and technology assets in South Africa, India, Latin America, Asia, sub-Saharan Africa, and Eastern Europe.

Naspers was the only media company in 2009 to report revenue growth above 5%. Operating profit grew by 19% to R2.8 billion. Although more than 50% of its revenue comes from South Africa, driven by the evidently recession-proof pay-TV (MultiChoice accounts for 60%), income from its offshore subsidiaries is also growing rapidly.

Foreseeing the value in pay-TV, in 2007 Naspers bought out the 38% stake that media group Johnnic Communications (now Avusa) had in M-Net/Supersport for R3.3 billion. MultiChoice’s revenue has grown 15%, largely from subscription growth of 54%.

Adding to the numbers is MultiChoice’s growing penetration of the African continent, particularly in Nigeria, where it has about one million customers. Naspers has also defended its pay-TV turf from new competitors by offering specially packaged DStv bouquets for the various consumer segments.

But it is Naspers’s gamble on Tencent that has inspired confidence in the direction Naspers is taking. The company owns 10% of Tencent, China’s biggest Internet portal and the best performer on the Hong Kong Securities Exchange. Tencent’s strength is instant messaging. It owns over 80% of this market. In 2009, Tencent brought in 56% (R2.2 billion) of the R4.1 billion revenue of Naspers’s Internet division. Tencent’s core target market is the 15-35 age group, which is the biggest user of the Internet and all its offerings in China. This is not the case in Africa, where Naspers is exploring opportunities in mobile usage growth. It has launched mobile TV and owns 30% of Mxit.

Many credit Naspers meteoric rise To MD Koos Bekker (57), who took over the reins in 1997. A witty but private personality whose success has come mostly from his reliance on instinct. Naspers’s top management comprises mavericks who possess an appetite for calculated risks.

Although Naspers has been a growth story through the recession, it has not been immune to the downturn. Its revenue growth in 2011 of 6% was a shadow of the 22% recorded in 2010. Its print assets, housed under Media24, also took a knock from depressed advertising spend, forcing closure of a few titles. A number of staff members in the print division were also retrenched.

With a price to earnings ratio of 33.88 – higher than the sector’s 30.58 – Naspers may be considered an expensive buy, but investors can expect long-term rewards.Adapted from: Louw and Venter (2010) Strategic Management Developing Sustainability in Southern Africa 2ndedition. Oxford

1.1 Discuss the factors that affect the strategic choice(s) available to Naspers. (12)

1.2 Identify and discuss the various corporate strategies Naspers has pursued. (10)

1.3 Discuss the appropriateness of these strategies in terms of strategic intent and the long-term goals of Naspers. (8)

1.4 Discuss the characteristics of strategic leadership that Bekker would have displayed in implementing the various strategies at Naspers. (10)

A company has a competitive advantage over its rivals when its profitability is greater than the average profitability of all companies in its industry. It has a sustained competitive advantage when it is able to maintain above-average profitability over a number of years (Hill and Jones, 2009:77).

With reference to this, discuss the sources of competitive advantage and superior profitability and explain the link between strategy, competitive advantage and profitability.

3.1 Discuss the role of organisational culture in strategy implementation (10)

3.2 Discuss the reasons why companies enter into strategic alliances (10)

The diagnostic phase of change management is mainly a data gathering or research activity aimed at producing useful information upon which subsequent intervention decisions can be based

With reference to this, discuss the main aim(s) of organisational diagnosis and describe the steps in the diagnostic process.