Tuesday 17 June 2014


photo: http://www.kindletechno.com
If an business ethics question comes up tomorrow (in either section of the BUSS4 paper) please remember that Apple/Foxconn is a good example. A helpful theory to bring in when discussing this example is Charles Handy's shamrock organisation. If you were to view Apple as a shamrock organisation its core workers would be its R&D and marketing people in Silicion Valley, California. Apple's contractual fringe are the people who manufacture the iphones, ipads etc; work which has been outsourced inc. major operations in China. There is a mismatch between the soft HR and good working conditions experienced by core workers and treatment of the contractual fringe in Foxconn's factory in Shenzhen, China. There the workers 6 days a week, with some of them living in cramped dormitories and protected from committing suicide by suicide nets around the factory. There have been scandals re: use of student labour. You can read about the issue in the BBC article below and form you own views. To be fair to Apple they are not alone in facing accusations of potential double standards in tolerating poor working conditions (by western standards) in their supply chain.
 

Tuesday 20 May 2014

Diageo's Chinese takeover


pic: telegraph.co.uk
 
Domestic brands are closely guarded in China and hence takeovers of Chinese companies are not that common. Consequently, the acquisition of a Chinese baijiu manufacturer by FTSE top 100 company Diageo in 2013 is an interesting example (baijiu is China’s national alcoholic drink). This is an example of horizontal integration as it was one drinks manufacturer taking over another (removing potential competition from the market and enabling Diageo to attain increased market share and economies of scale in its Chinese operations). The move is part of Diageo’s corporate objective of growth which it aims to deliver by increasing its presence in emerging markets. By widening its product portfolio in the Chinese market Diageo would no doubt hope that it could grow revenues for its other key brands in that key growth market. Having said that, the early months post-merger have been very difficult ones in that specific market as the takeover has coincided with a crackdown on corruption and gift-giving for government officials by the new Chinese President (restrictions on gift-giving has hit alcoholic drinks companies hard).  Likewise rival baijiu manufacturers have been discounting heavily which has hit profit margins and revenue for Diageo’s brand.

Thursday 8 May 2014

Chinese competition (Bullet Point 6)

Bullet Point 6 is how business strategy might be affected by developments in China. One of the key developments is that domestic firms in China are increasingly able to compete against foreign businesses both in China and in international markets. Have a look at these 2 companies as good examples of this trend:

Huawei: world’s largest telecoms-equipment-maker; diversifying into consumer electronics


Lenovo: world’s largest manufacturer of personal computers; moving into smartphones & tablets


 

 

Monday 28 April 2014


The “item” in this week’s essay covers an ethical issue for a prestigious British organisation who (possibly unknowingly) used a supplier in China who had some unethical working practices. You will have heard of the British organisation, but not the Chinese supplier.  The essay title combines bullet point 5 with another bullet point (you could usefully look back at the essay you did for bullet point 2). If I was doing the essay the companies I would use to support my arguments would certainly include  Foxconn/Apple (unethical working practices), GlaxoSmithKline (corruption allegations).
 
 
 
 

Monday 21 April 2014

Will Underwood's BP4 essay



Extracts from Will Underwood's essay for Bullet Point 4



Short introductory paragraph

The considerable economic growth in China can be exploited by companies in different ways with differing degrees of success. Dulux grew in China by basing production there in order to play a full and active part in the market. JLR originally imported, which despite being costly proved viable to the extent that they are now planning on producing there. Lego on the other hand currently solely import (although this too is changing)  

Paragraph 2 (the item – Dulux)

Paragraph 3

JLR’s market development strategy (from Ansoff’s matrix) in China has been based on importing so far. Currently import taxes double or even treble the price of each model. A Landrover Discovery for instance in the UK is £36K but in China the price is equivalent to £100K. The high economic growth rates in China over many years (even last year growth was at 7-8%) has created a growing middle class with a high disposable income and a taste for foreign luxury brands. JLR have been able to benefit from this with their strong British luxury brand appealing to the increasingly affluent Chinese consumer. JLR have been able to charge premium prices and still drive up sales in the 2013 to their highest ever on the Chinese mainland. All this has been achieved through importing, but with the Chinese luxury car market still growing JLR have decided that there are clear advantages to be had from operating in China rather than just importing (they are building a factory near Shanghai to be operational in 2014/15). The fundamental advantage this will give them is the chance to achieve a scale of operation in China which importing might not have allowed. It also enables them to build cheaper models (with no added import tax) for their Chinese market in conjunction with their joint venture partner Chery. Furthermore, they will be able to use Chery’s well established dealer network to achieve higher market penetration.
  
Paragraph 4 – Lego (success through importing – although a factory coming on line in 2017)

Conclusion

To conclude, the extent to which operating in China has an advantage over trading with China is debatable. There is a fine balance of risks and benefits. Operating in China may reduce costs but at the cost of sharing with joint venture partners and/or government officials. Importing therefore may well be expensive but can help protect the values that have established the brand. One of the key factors from the examples I have covered would appear to be where the company is in its “lifecycle” of trading with China – operating in China would appear to be a more attractive option for a company which has successfully built up knowledge and a brand reputation in that country through importing first. The nature of the product and service is also an important influence on whether trading with/ or operating in China is the more rewarding option.   

Monday 17 March 2014

Links for BP4 research


Tutor2u slides


Exporting




Joint ventures




Mergers



Producing in China



Sales Outlets in China (Wholly owned or franchised)