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Courtesy: Saiful Islam Mozumder, Shiraz Khan Basak & Co, Cell-01515653940 Email:simbd@outlook.com
Strategic Business Management
Chapter- 1
Strategic analysis
Case example: Jaguar Land Rover
In its 2013-4 Annual Report, Jaguar Land Rover summarised its objectives and strategy:
'The Company has a multifaceted strategy to position itself as a leading manufacturer of premium vehicles
offering high-quality products tailored to specific markets, and to profitably grow its strong, globally
recognised brands. The Company invests substantially to develop new products in new and existing segments
with new powertrains(*) and technologies to meet customer aspirations and regulatory requirements.
Complementing this, the Company invests in manufacturing capacity in the United Kingdom and
internationally to meet customer demand.’
* The ‘powertrain’ in a motor vehicle describes the main components (like the engine, transmission,
drive shaft and wheels) that generate power and deliver it to a road surface.
The focus on 'premium' and high quality is important here, because it shows how Jaguar Land Rover is
looking to differentiate itself from the budget and mid-range vehicles.
In its Annual Report, Jaguar Land Rover then goes on to identify five objectives, which it believes are the
key steps it needs to take to achieve this strategy:
1 Grow the business through new products and market expansion – Jaguar focuses on producing
products in the premium performance car and all-terrain vehicle market segments, and aims to grow
the business by diversifying its product ranges within those segments. For example, the Range Rover
Evoque is designed for the market segment for smaller, lighter and more ‘urban’ off- road vehicles,
complementing the more mature, existing markets for Range Rover, Freelander and Discovery.
Alongside this product development, the company is also looking to ‘expand its global footprint.’
On the one hand, this market development has seen Jaguar Land Rover increasing its marketing
and dealership network in emerging markets such as China where it had 170 dealerships by 31
March 2014. On the other hand, the company is progressing with new manufacturing facilities,
assembly points and suppliers in selected markets. This includes a manufacturing and assembly
joint venture in China with Chery Automobile Company Limited, an assembly facility in India,
operated by Tata Motors, and a manufacturing facility in Brazil.
2 Invest in manufacturing – Over the long term, Jaguar has a capital spending target of between 10- 12%
of revenue, which is in line with other premium automotive manufacturers. However, in the short and
medium term, Jaguar expects capital spending to be higher to allow it to take advantage of the
growth opportunities presented.
3 Invest in R&D, technology and people – The company aims to maintain and improve its competitive
position by developing technologically advanced vehicles, particularly with regard to economy and
emissions aspects. Jaguar undertakes extensive in-house R&D, particularly through two advanced
engineering and design centres, which centralise capabilities in product design and engineering.
However, the company is also involved in a number of advanced research consortia which bring
together leading manufacturers, suppliers and academic specialists.
The company recognises that its workforce is key to its success, and it recruits talent from many
sources, as well as engaging in a number of collaborations.
4 Transform the business structure to deliver sustainable returns – The company undertakes a range of
internal and external benchmarking activities which help to identify cost improvement opportunities for
components and systems. This includes sharing components across different designs and models of car in
order to reduce engineering costs and to gain economies of scale.The company is also looking to enhance
global sourcing and to take advantage of lower-cost bases in countries such as India and China.
5 Continuing quality improvement and focus on putting the customer first – Superior vehicle quality is a
key element of Jaguar’s competitive advantage, and it has implemented a range of programmes
(both internally and at suppliers’ operations) designed to improve the quality of its products, enhance
customer satisfaction and reduce future warranty costs.

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Robust procedures are in place in the supply chain to ensure quality control of outsourced components,
and products purchased from approved suppliers undergo a supplier quality improvement process.
Downstream in the supply chain, the extensive sales and service network enables high quality and
timely customer services. Through close co-ordination, supported by IT systems, Jaguar monitors
the quality performance of its vehicles and implements corrections on an ongoing basis to
minimise any inconvenience to its customers.
Case example: Telecommunications inZambia
The telecommunications market in Zambia is dominated by mobile network operator Bharti Airtel (formerly Zain)
which has a market share of around 65%. However, the fastest growth in subscribers is currently being seen by the
second-placed network, MTN (formerly Telecel) from South Africa. It has a market share of around 26%.
The third competitor in the mobile market is Cell Z, which has a market share of around 7%. Cell Z is the
mobile division of the national telecommunications provider Zamtel (Zambia Telecommunications Ltd).
In 2012 the Zambian government appeared to have cleared the way for a fourth mobile service provider,
and by early 2013 bids had been received from five telecom operators, including Vodacom of South Africa.
The entry of a fourth provider would increase competition in the sector, generate sustainable
improvements in the quality of services, reduce tariffs and extend service outreach to more areas. In
particular, the Zambian government was concerned with the high cost of making phone calls, and felt
that the increased competition from a fourth mobile service provider could help reduce call tariffs.
However, in August 2013, the Zambian government announced that plans to award the fourth mobile licence had
been put on hold until the completion of the country’s digital migration project. (In line with the Southern African
Development Community’s deadline, Zambia plans to migrate to digital television services by 2015.)
Zamtel
Against an overall background of growth, Zamtel has been performing poorly in the mobile
telecommunications market as well as the fixed-line sector, despite historically having monopoly rights
over the fixed-line sector, including the international gateway. Zamtel's monopoly over the international
gateway had limited growth in the internet and broadband sector, and left Zambia facing some of the
highest prices for international bandwidth on the African continent.
However, in 2010, the government ended Zamtel's monopoly on the international gateway and restrictions on VoIP internet
telephony, a decision aimed at making international calls and borderless international roaming much more attractive.
The government also established (through the Information and Communication Technologies (ICT) Act
No.15 of 2009) a new licensing regime that will enable more competition in all market sectors, from
existing and new players. With penetration rates in all sectors still below regional averages, the growth
prospects for telecoms companies in Zambia are excellent.
In mid-2010 a majority stake in Zamtel was sold to LAP Green of Libya (although this sale was subsequently
challenged, and Zamtel reverted to be a state-owned company). One of Zamtel's key assets is a national fibre
network which includes connections to neighbouring countries and which will provide transit links to international
submarine fibre optic cables off the African east and west coasts. However, alternative domestic fibre is already
being rolled out by three other companies, and one of them has recently completed the country's first ever
connection to an international submarine fibre optic cable. Alternative international fibre links went live in 2010
and 2011, reducing the dependency on a single provider. This will, first and foremost, benefit the broadband
sector with cheaper international bandwidth. Zamtel's expensive ADSL service is still dominating this sector, albeit
at a very low level. Competition exists from several ISPs that have rolled out WiMAX wireless broadband networks.
Mobile data services using GPRS and EDGE are available but have remained expensive under the current
conditions. Third generation (3G) mobile broadband services were launched in Zambia in early2011.
Five Forces
As you read the case study, try to think about what the key forces are that might influence the profitability of the
mobile telecommunications industry in Zambia – for example regulatory environment and structural reform;
infrastructure development; competitive rivalry between key players; development of new technologies; pricing
trends – and think about how these could affect the profitability of the industry.
Threat of New Entrants – Two main barriers to entry in to the telecoms industry can be distinguished.
Firstly, in order to assume the high fixed costs characteristic of this capital intensive industry, potential
new entrants must have a high level of cash in hand. The availability of funds, or the ability to raise
funds through capital markets can therefore exert a direct influence on the industry players.

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Secondly, regulatory approval and licensing can be seen as a massive barrier to entry. However, the
liberalisation of the markets opens up the opportunity for new entrants to join the market.
Suppliers' Power – Key suppliers will be the telecommunication equipment makers (for example,
suppliers of fibre optic cables or handset manufacturers). Their bargaining power is likely to be
determined by how many alternative suppliers exist for each type of equipment. If there are a number
of competing suppliers, this will reduce their bargaining power over the telecoms companies. However,
because the manufacturing and delivering of some of these products requires a high degree of
knowledge and expertise, this could sometimes increase the suppliers' bargaining power.
Customers' Power – Market liberalisation is likely to increase competition and broaden consumers'
choice of supplier. This increased choice is also likely, in turn, to boost technology advances and
enhance services, but it will also drive prices down. Therefore liberalisation will increase customers'
power in the telecommunications industry. Nevertheless, high switching costs on certain market
segments, such as business segments, can reduce buyers' power.
Threat of Substitutes – The threat of multiple products and services from non-traditional telecoms
industries has raised serious challenges to telecommunications players. For example, the internet (delivered by
Internet Service Providers) has, over the past few years, proved to be an efficient tool for marketing cut rate
voice calls, to the detriment of the more traditional phone business (delivered by telecoms companies).
Business Rivalry – Market liberalisation (industry deregulation), breakthrough innovations and new
technologies, together with attractive economic indicators (eg growth rates) can contribute to the
creation of intense rivalry between players in the industry.
Case example: Huawei smartphones
Although sales of smartphones have been increasing in recent years, not all phone makers have shared this success.
In the three months to July 2012, Nokia made losses of £1.1 billion as it has battled to remain
competitive in a smartphone market dominated by Apple and Samsung, which between them had over
50% of global market share.
Nokia was once the world's leading mobile phone maker, but in the second quarter of 2012 it sold four
million Windows phones, which was only a fraction of Apple's sales of around 30 million iPhones or
Samsung's 50 million smartphones.
However, another big winner has emerged in the smartphone market: Huawei Technologies. Although Huawei
was only the seventh largest smartphone maker in 2011, by the fourth quarter of 2012 it had become the third-
largest smartphone maker, although its sales were still much lower than Samsung or Apple’s.
Huawei was founded in 1987, and quickly became a high-tech success story in China by selling telecom
products to phone companies, routinely beating rivals such as Alcatel-Lucent Ericsson, and Cisco
Systems with good-enough products and great prices. Huawei only began making mobile phones in
the mid-2000s. However, the Shenzhen-based company's inexpensive, often unbranded models gained
market share in China, the Middle East, and Africa.
Huawei kept this low-cost approach as it got serious about smartphones during 2009. It didn't try to
build its own software operating system like Apple, or Microsoft; but used Android instead. Furthermore,
unlike Samsung, or Motorola, it didn't try to differentiate from Google's mobile software with its own
tweaks. It simply installed Android on its hardware and then began to distribute it.
Huawei sold 27 million smartphones in 2012 (an increase of 74% compared to 2011), partly as a result
of gaining a larger market share of the US market. In 2013, sales again increased by over 70%, to a total
of 46.7 million units sold.
Prior to 2012, Huawei sold handsets costing less than US$200 to providers such as MetroPCS and
Cricket that offer pay-as-you-go plans, mostly to lower-income consumers.
In November 2011, it landed a deal with a top-tier US provider when AT&T started selling Huawei's
Impulse phone for $29. And in July 2012, T-Mobile announced that Huawei would be building two
models in the mobile phone operator's MyTouch line of handsets.
'We essentially made the market for affordable smartphones,' says William Plummer, Huawei's US vice president
for external affairs. 'We're in a good position because we've established ourselves as a trusted partner to carriers.'
However, succeeding in smartphones is vital for Huawei if it wants to remain a fast-growing company.
Its US$23 billion-a-year telecom equipment business grew by only 3.5 percent in 2011, before declining
in 2012 due to the slowdown in China's economy this year.

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The company re-organised in 2011 to create a separate Huawei Devices unit to drive what executives say is the
company's best growth opportunity. The division also makes laptop modems and other functional devices.
Huawei's growth rate may even make it a plausible challenger to Samsung in smartphone sales,
according to Horace Dediu of equity research firm, Asymco. Dediu argues that Samsung has prospered
largely because of vertical integration: it makes many of the chips and screens that go into its devices.
Yet he doubts Samsung has built up enough brand loyalty to withstand a much cheaper alternative, not
least because Samsung itself was only the fourth or fifth largest supplier just a few years ago.
So, as smartphones evolve from novelty technology into just another gadget, Huawei will be well
positioned to benefit. Although their phones may not be as sophisticated as those of some competitors,
they are inexpensive and as one research analyst commented, 'Their devices don't have to have jet packs
to do 90 percent of what most people need.'
Moreover, by 2013, sales of handsets in mature regions (US; Western Europe) began to slow, with
emerging markets – in particular India and China – providing the engine for growth. This again would
seem to favour manufacturers of cheaper handsets, compared to Samsung or Apple.
Analysis by the technology research firm, Gartner, showed that Samsung’s share of the global mobile
phone market fell from 31.1% in the fourth quarter of 2012, to 29.5% in the fourth quarter of 2013,
and Gartner attributed this dip to the saturated high-end markets in the developed regions which had
previously been the engines for growth in the global market. Over the same period, Apple also saw its
market share drop from 20.9% to 17.8% while Huawei’s share increased from 4.2% to 5.7%.
In response to changing patterns in demand across the global market, Gartner said it expected an
increasing number of manufacturers to refocus their product portfolios on lower-end devices.
Based on: Burrows, P., (2012) 'The New Smartphone Powerhouse: Huawei', July 19,
www.businessweek.com
Latham, C., (2012) 'Nokia loses £1.1 bn as rivals steal limelight', July 20, www.metro.co.uk.
Gartner (2014) Market Share Analysis: Mobile Phones, Worldwide, 4Q13 and 2013, February 12,
www.gartner.com
Reuters (2014) Smartphone sales growth to slow this year – Gartner, February 13, www.reuters.com
Case example: Glaxo SmithKline
Since the 1950s, a key resource for large pharmaceutical companies has been patented drugs with regulatory
approval. This resource has been continually refreshed through research and development (R&D) activity which
has involved testing large numbers of prototype drugs for their effectiveness in treating different illnesses.
Pharmaceutical companies built up dynamic learning capabilities through establishing and developing
teams of specialist researchers, and other groups who were skilled in the extensive phases of testing
required to gain regulatory approval for new drugs.
At the end of the 20th century, a series of mergers and acquisitions led to consolidation within the
industry, for example with GlaxoWellcome merging with SmithKline (which had previously merged with
Beecham) to form GSK in 2000.
However, GSK has also acquired some much smaller firms, many of whom have never sold any
products, and who operate with quite different technologies and science bases; for example,
biotechnology firms. This is because biotechnology is now seen as the main driver of innovation within
the pharma sector, and so the big pharmaceutical companies are consequently seeking closer relations
with the highly innovative biotech industry.
For example, GSK's acquisition of Corixa in 2005, despite being partially driven by the financial potential
of Corixa's Monophosphoryl Lipid A (MPL) (which was contained in many of GSK's candidate vaccines,
including its potential blockbuster Cervarix), also dramatically expanded GSK's already lucrative vaccine
platform, providing it with much needed additional expertise in the field.
Similarly, in 2007, GSK bolstered its biopharmaceuticals portfolio with the purchase of the UK-based
speciality antibody company, Domantis. The acquisition cost £230 million, but Domantis has become a
key part of GSK's Biopharmaceuticals Centre of Excellence for Drug Discovery (CEDD), and helped
catapult GSK into the arena of next-generation antibody drugs by more than doubling the number of
projects it has in this area.

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More recently, GSK has also divested (or outsourced) activities traditionally performed in-house.
Pharmaceutical giants were not immune to the global economic downturn in 2008-9, and they were
forced to adopt cost-saving strategies, like companies in many other industries. However, GSK looked
towards more sophisticated approaches beyond simply cutting jobs and shelving expensive projects.
GSK has assigned a group of its scientists and patents to a standalone company dealing specifically with
research and development into pain relief. 14 of GSK's leading researchers, along with the rights to a
number of patents for experimental analgesic medicines, have been moved into a start-up company
formed in October 2010: Convergence Pharmaceuticals.
This arrangement has been specifically engineered to reduce the overhead costs involved with research
and development, while simultaneously allowing GSK to benefit from any breakthroughs that
Convergence Pharmaceuticals might develop and go on to market.
So, Glaxo's original learning processes of R&D have subsequently been augmented by three different
phases of reconfiguring its capabilities. The first phase (of mega-mergers) involved similar firms
combining; the second phase consisted of the acquisition of innovative biotech companies; and the
third, most recent, phase consisted of restructuring and outsourcing activities.
This sequence of phases is evidence of GSK's regenerative dynamic capabilities, triggered by
performance problems caused by the declining value of its current resource base as the patents on
existing products expired. GSK's existing R&D capabilities were insufficient in themselves to maintain, or
expand, the stock of resources. The move into biotechnology acquisitions was triggered by the
realisation that the pipeline of new drugs was drying up, as well as the fact that pharmaceutical
companies are now operating in an increasingly challenging environment, with high competitive rivalry,
price sensitivity among health care providers, and stricter ethical standards.
Case example: Intel and video streaming
Intel, the world's largest computer chip manufacturer, is set to launch a web-based video streaming
service in 2013, as it attempts to find new means of making profit in the face of declining PC sales.
Intel has felt the force of a drop in sales as it struggles to compete with the rise of tablets, smartphones and other
mobile devices. The company's fourth quarter income for 2012 suffered a year-on-year decline of 27 per cent.
However, Intel believes it can take advantage of a rise in demand for the online streaming of television shows and
other video content. The Corporate Vice President of Intel Media, Erik Huggers said, 'We have been working over
the past year to set up Intel Media, a new group focused on developing an internet platform.'
'It's not a value play, it's a quality play where we'll create a superior experience for the end user,' said
Huggers, who in a previous job helped launch the BBC iPlayer.
But rather than relying solely on online streaming, Intel's plans revolve around a proprietary set-top box
that customers will need if they are to use the service. The hardware doesn't yet have a name or a price,
but Huggers revealed that Intel employees are already testing it in their own homes.
In what might be regarded with suspicion by potential consumers, the Intel set-top box contains an in- built
camera to observe movements and TV viewing habits in order to personalise the way users watch television.
'My kids may watch programming geared toward them, and I'll watch programming geared toward
me,' said Huggers. 'If there's a way to distinguish who is watching what, advertisers can then target ads
at the proper parties.'
The move into the living room will see Intel competing with the likes of Amazon, Netflix and LoveFilm, which
offer video streaming via computers and games consoles. It also marks a move into Apple territory. Apple TV
already allows users to watch television shows and films from the comfort of their living room.
Huggers insists that Intel is serious about internet television streaming and plans to be competing in this
space over the long haul. 'Rome wasn't built in a day,' he said. 'It'll take time.'
Based on an article by Palmer, D. (2013), Intel to launch set-top box based video streaming service,
13 February, computing.co.uk
Case example: Tesco – Principal risks
In the corporate governance section of its 2014 Annual Report and Financial Statements, Tesco provides a
summary of the principal risks it faces, and for each risk, it identifies key controls and mitigating factors.
The Annual Report was published in May 2014, before the accounting scandal which hit Tesco in
September/October 2014 when it emerged that the supermarket had incorrectly recorded the

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payments it receives from suppliers for stocking their products, thereby over-stating its profits by £263
million. A number of directors were suspended as a result of this and the Chairman, Sir Richard
Broadbent, announced he was stepping down. At the same time, Tesco hired two new non-executive
directors in response to criticism that its existing board did not have sufficient retail experience.
In addition to the accounting scandal, Tesco’s like-for-like sales also fell 4.6% for the first half of its
2014/5 financial year, and it acknowledged it faced a tough trading environment, with supermarkets
engaged in a price war as they face pressure from discounters Aldi and Lidl.
Bear these subsequent events in mind, as you read through the principal risks which Tesco had
identified in its Annual Report:
Business strategy risk – If the Group follows the wrong direction, or if its strategic direction is not
effectively communicated or implemented, the business may suffer.
The retail industry is undergoing a transformation change in this digital age, so there is a challenge in
balancing investment and emphasis between the traditional (eg physical stores) and the new elements
of the business (eg online shopping; click and collect).
Tesco also needs a clear strategy to deal with the growth of budget retailers, because an unclear – or
unsuccessful – strategy in this respect could adversely affect market share and profitability.
Financial strategy risk – Risks relate to an incorrect or unclear financial strategy and the failure to
achieve financial plans. Weak performance could put pressure on the company’s free cash flow.
However, there is also a risk that focusing on short-term targets could come at the expense of investing
in the company’s longer-term strategy.
Competitionandconsolidation risk–Failuretocompeteonareasincluding price,productrange,
quality and multi-channel service in increasingly competitive UK and overseas retail markets could
impact on the Group's market share and adversely affect its financial results.
New entrants to the market and the consolidation of competitors through mergers or trade agreements
could also adversely affect Tesco's market share.
Reputational risk – Failure to protect the Group's reputation and brand in the face of ethical, legal,
moral or operational challenges could lead to a loss of trust and confidence and a decline in customer
base. It could also affect the Group's ability to recruit and retain good staff.
Similarly, if the Group does not make positive contributions to society (and communicate these
effectively) this may also adversely affect its ability to win and retain customer trust and loyalty.
Performance risk in the business – Risk that business units underperform against plan and against
competitors, and that business fails to meet the stated strategy.
The Group’s ability to deliver long-term goals and sustainable performance may also be impaired if the
business focuses too heavily on short-term targets.
Property risk – Continuing acquisition and development of property sites carries inherent risk; targets to
deliver new space may not be achieved; challenges may arise in relation to finding suitable sites, obtaining
planning or other consents, and compliance with design and construction standards in different countries.
More generally, Tesco faces the challenge of maintaining a cost-effective estate, with the right balance
of freehold and leasehold sites.
Economic risks – In each country where it operates, Tesco is affected by the underlying economic environment,
the impact of economic cycles on consumer spending, and the fiscal measures which apply to the retail sector.
Political and regulatory risks – In each country in which it operates, Tesco could be affected by legal
and regulatory changes, increased scrutiny by competition authorities, and political developments
relevant to domestic trade and the retail sector.
Product safety and ethical trading – Failures to ensure product safety and to trade ethically could
damage customer trust and confidence, affecting Tesco's customer base and therefore, financial results.
ITsystemsandinfrastructure–AnysignificantfailureintheITprocessesofTesco'sretailoperations
(online or in store) would have an impact on its ability to trade.
As the digital marketplace grows, failure to make sufficient investment in technology – or investment in
the wrong areas – could constrain multichannel growth and affect the company’s competitiveness.

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Failure to invest appropriately in controls over the company’s online presence, and to implement them
effectively, could increase its vulnerability to cyber-attack. However, as well as investing in new
technology, Tesco needs to ensure it maintains the controls over its existing technology to ensure
system availability and security, including the security of personnel, supplier or customer data.
The inherent reputational risks of the IT control environment have increased as customers and staff have
become increasingly sensitive to matters of data usage, storage and security.
People – Failure to attract, retain, develop and motivate the best people, with the right capabilities at all
levels could limit the Group's ability to succeed.
Multichannel retailing is increasingly people-focused and demands new technical and social skills. Talent planning
and people development are therefore important in enabling Tesco to become the organisation it wants to be.
Group Treasury – Effective cash and debt management are crucial to the operation of the business.
Failure to ensure the availability of funds to meet the business’s needs, or to manage interest or
exchange rate fluctuations or credit risks, could limit the Group's ability to trade profitably.
Tesco's financial risks are separately identified as: funding and liquidity risk, interest rate risk, foreign currency
risk, credit risk, and insurance risk (being inadequately protected against liabilities arising from unforeseen events).
Tesco Bank – the impact on the Group of financial risks taken by Tesco Bank. The key financial risks
relating to the Bank include interest rate, liquidity, credit and insurance risks. Changes to financial
regulations could also affect banking profitability.
Pensions – The Group's IAS 19 deficit could increase if there is a fall in corporate bond yields that is not
offset by an increase in the pension scheme's assets. Other risks affecting the deficit include investment,
inflation and life expectancy risks.
There are also risks of legal and regulatory changes introducing more burdensome requirements.
Fraud,complianceandinternalcontrols–Asthebusinessdevelopsnewplatformsandgrowsinsize,
geographical scope and complexity, the potential for fraud and dishonest activity by its suppliers,
customers and employees increases.
Businesscontinuityandcrisismanagement–Amajorincident(forexample,anaturaldisasterora
major system failure) could have an impact on staff and customer safety, or the Group's ability to trade.
Case example: BHP Billiton
In its Annual Report for 2012, the global resources company BHP Billiton stated that its purpose is 'to
create long-term shareholder value through the discovery, acquisition, development and marketing of
natural resources.' In relation to this, its strategy is 'to own and operate large, long-life, low-cost,
expandable upstream assets diversified by commodity, geography and market. This strategy means
more predictable business performance over time which, in turn, underpins the creation of value for our
shareholders, customers, employees and, importantly, the communities in which we operate.'
BHP's Annual Report contains a section entitled 'Our strategy' that explains this strategy in more detail,
and highlights the strategic drivers through which it pursues its purpose: including people; world-class
assets; financial strength and discipline; and growth options.
The report also then goes on to detail the external factors and trends affecting BHP's results. 'We operate
our business in a dynamic and changing environment and with information which is rarely complete
and exact.' Nonetheless, 'management monitors particular trends arising from external factors with a
view to managing the potential impact on our future financial condition and results of operations.' The
report then details the factors which BHP's management feel could have a material adverse effect on the
business. These include: commodity prices, exchange rates, and change in product demand and supply.
Concerns surrounding the stability of the Eurozone and the decline of economic activity that
accompanied the managed slowdown of growth in China led to significant market volatility in 2012. In
China, the government has introduced stimulatory measures aimed at supporting sustainable growth.
The successful containment of inflation, looser monetary policy and evidence of a recovery in
infrastructure investments should be positive for commodities demand in the short to medium term.
Similarly, there are encouraging signs that the US housing market may have stabilised…
Our forecast of supply additions to meet anticipated demand varies by commodity. We have analysed
whether existing supply up to the end of 2011 and low-cost capacity additions through to 2015 will be
sufficient to meet anticipated demand growth through to 2020.

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In the case of aluminium, we expect the forecast demand growth to be met by capacity additions through to
2015. As such, we see the aluminium market changing at the variable cost of production for the foreseeable
future. With iron ore, we expect approximately three-quarters of the demand growth to be met by low-cost
supply by 2015. As such, we expect going forward that iron ore supply will meet demand in due course and that
the scarcity pricing seen in recent years is unlikely to be repeated. With copper, only about a quarter of demand
growth through 2020 has currently been met by existing low- cost supply and even by 2015 40% of this
demand growth is not expected to be met by new low-cost supply. Resource depletion and resource
degradation continue to constrain the pace of low-cost supply addition, and therefore prices are expected to be
at a level high enough to induce additional supply through the development of greenfield mines.
Case example: Coca-Cola
Management's Discussion and Analysis (MD&A)
The section of the MD&A in Coca-Cola's Annual Report for 2012 entitled 'Our Business' includes the following:
 A general description of Coca-Cola's business and the non-alcoholic segment of the beverage
industry
 Our objective
 Our strategic priorities
 Our core capabilities
 Challenges and risks of our business
(Note the potential links between these headings and the sections of this chapter: specifically, objectives
– section two; capabilities – section four; challenges and risks – environmental analysis; section three.)
Our Business
Coca-Cola owns or licenses more than 500 non-alcoholic beverage brands, and it makes its products
available to consumers throughout the world through its network of company-owned or -controlled
bottling and distribution operations, as well as independent partners, distributors, wholesalers and
retailers – the world's largest beverage distribution system.
We believe our success depends on our ability to connect with consumers by providing them with a wide
variety of choices to meet their desires, needs and lifestyle choices. Our success further depends on the
ability of our people to execute effectively, every day. Our goal is to use our Company' assets – our
brands; financial strength; unrivalled distribution system; global reach; and the talent and strong
commitment of our management and associates – to become more competitive and to accelerate
growth in a manner that creates value for our shareowners.
The Non-Alcoholic Beverage Segment of the Commercial Beverage Industry
Coca-Cola operates in the highly competitive non-alcoholic beverage segment of the commercial beverage
industry. It faces strong competition from numerous other general and speciality beverage companies.
Along with other beverage companies, Coca-Cola is affected by a large number of factors, including
(but not limited to): the cost to manufacture and distribute products, consumer spending, economic
conditions, availability and quality of water, consumer preferences, inflation, political climate, local and
national laws and regulations, foreign currency exchange fluctuations, fuel prices and weather patterns.
Our Objective
Our objective is to use our formidable assets – our brands, financial strength, unrivalled distribution
system, global reach, and the talent and strong commitment of our management and associates – to
achieve long-term sustainable growth.
Strategic Priorities
We have four strategic priorities designed to create long-term sustainable growth for our Company and
the Coca-Cola system and value for our shareowners. These strategic priorities are: driving global
beverage leadership; accelerating innovation; leveraging our balanced geographic portfolio; and leading
the Coca-Cola system for growth.
To enable it to deliver on these strategic priorities, Coca-Cola has identified that it needs to further
enhance four core capabilities of:

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 Consumermarketing–marketingisvitaltoenhance consumerawarenessof,andincrease
consumer preference for, Coca-Cola's brands. In turn, this helps to produce long-term growth in
demand, and to increase the entity's share of worldwide non-alcoholic beveragesales.
 Commercialleadership–TheCoca-Colasystemreliesonmillionsofretailerswhosellorserveits
products directly to consumers. Therefore, Coca-Cola focuses on ensuring that these retailers have
the right product availability and delivery systems, as well as promotional tools, merchandising and
displays, so that the retailers can deliver enhanced value both to themselves and Coca-Cola.
 Franchiseleadership–GrowthisanimportantthemeintheMD&A,andCoca-Cola'sbottling
partners play a key part in that growth.
The financial health and success of our bottling partners are critical components of the Company's
success. We work with our bottling partners to identify system requirements that enable us to
quickly achieve scale and efficiencies, and we share best practices throughout the bottling
system…We will continue to build a supply chain network that leverages the size and scale of the
Coca-Cola system to gain a competitive advantage.
 Bottling and distribution operations – Most of Coca-Cola's beverage products are
manufactured, sold and distributed by independent bottling partners. However, in recent years, the
amount of products being manufactured, sold and distributed by consolidated bottling and distribution
operations has increased. Coca-Cola has often acquired bottlers in under-performing markets where it
believes it can use its resources and expertise to improve performance (for example, through improving
the bottler's information systems or establishing an appropriate capital structure).
Challenges and Risks
Although being a global company provides significant opportunities for Coca-Cola, it still faces risks and
challenges. Five key risks and challenges are discussed in the MD&A:
 ObesityandInactiveLifestyles–Increasingconcernsaboutthehealthproblemsassociatedwith
obesity and inactive lifestyles present a significant challenge to the beverage industry as a whole.
However, Coca-Cola can point to the fact that it has a very broad portfolio, containing beverages
to suit almost every calorific and hydration need. Consumers who want low- or no-calorie
beverages can choose from a continuously expanding portfolio of more than 800 of these
beverages, nearly 25% of Coca-Cola's global portfolio.
 Water Quality and Quantity – Water is the main ingredient in substantially all of the entity's
products and is needed to produce the agricultural ingredients on which its business relies. Water is
also critical to the prosperity of the communities Coca-Cola serves. However, it is a limited natural
resource, facing unprecedented challenges from demand, pollution, poor management and
climate change. Coca-Cola has a robust water stewardship and management program, is working
to improve water use efficiency, and is working towards its goal of replenishing the water that it
and its bottling partners source and use in its finished products.
 Evolving Consumer Preferences – Consumers want more choices. Coca-Cola (like other
companies) is affected by shifting consumer demographics and needs, on-the-go lifestyles, ageing
populations in developed markets, and consumers who are empowered with more information than
ever. However, it is committed to generating new avenues for growth through its core brands with a
focus on diet and light products, and innovative packaging. It is also committed to continuing to expand
the variety of choices it provides to consumers to meet their needs, desires and lifestyle choices.
 Increased Competition and Capabilities in the Marketplace – Coca-Cola faces strong
competition from some well-established global companies and many local participants. Therefore it
has recognised the importance of strengthening its capabilities in marketing and innovation in
order to maintain its brand loyalty and market share while it also looks to expand selectively into
other profitable segments of the non-alcoholic beverage industry.
 Food Security – Increased demand for commodities, and decreased agricultural productivity in
certain regions of the world as a result of changing weather patterns, may limit the availability, or
increase the cost of, key agricultural commodities, such as sugar cane, corn, coffee and tea, all of
which are important sources of ingredients for Coca-Cola's products. However, Coca-Cola is
committed to implementing programs focused on economic opportunity and environmental
sustainability designed to help address these agricultural challenges.

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Chapter-2
Strategic choice
Case example: Bang & Olufsen
The audio and television equipment manufacturer, Bang & Olufsen, has used a differentiation strategy,
based on style, to distinguish its products from those of its competitors.
Bang & Olufsen has built an international reputation for performance, design excellence and quality,
and has developed a very loyal customer base. Its sleek, tastefully discreet designs and high standards of
production have earned it elite status in the market. For decades, these factors have formed the basis of
Bang & Olufsen's advertising and marketing strategy, and the company has recognised that 'style' needs
to be displayed distinctively in retail outlets.
This has led to the creation of 'concept shops' where subtle images are projected onto walls and
products are displayed in free-standing areas constructed from translucent walls.
The company's view is that one cannot sell Bang & Olufsen equipment when it is sandwiched amongst
a densely-packed range of electrical goods or domestic appliances. By contrast, the concept shop gives
the right look and feel to make the most of the products.
Bang & Olufsen has focused on the importance of style and aesthetics rather than technology or low
prices in buying decisions. It sells products on the basis of ambience as much as sound.
However, one of the key challenges Bang & Olufsen faces is to keep its brand (and strategy) relevant in
a world where customers' audio-visual habits (eg listening to music via downloads and portable devices)
are changing. At the same time, Bang & Olufsen also needs to maintain its style distinction in the face of
high-end equipment being produced, for example, by Samsung and Sony.
In response to this environmental context, Bang & Olufsen launched a new brand – B&O PLAY – in
2012, focusing on audio-video products which combine convenience with high-quality, contemporary
design for the digital generation. Price points for B&O PLAY will also be lower than those typically seen
from Bang & Olufsen.
At the launch of the new brand, Bang & Olufsen’s CEO said, ‘We are very excited about the range of
products we will launch under this new brand. Through B&O PLAY we will bring core Bang & Olufsen
values of design, performance and quality to a new audience.’
(Based on a case study in: Jobber, D. (2010), Principles and Practice of Marketing, (6
th
edition),
Maidenhead, McGraw-Hill)
B&O PLAY website:www.beoplay.com
Case example: Tyrrell’s crisps
The crisp manufacturer, Tyrrell's, has successfully implemented a focus differentiation strategy, by
seizing an opportunity to produce better-quality potato chips than those traditionally found in the
supermarkets. Tyrrell's has targeted its chips at a market segment that would be prepared to pay a
higher price for good quality produce. A major feature of its strategy is to sell mainly through small
retailers at the upper end of the grocery and catering markets – thereby avoiding direct competition
with the market leader (Walkers crisps).
Tyrrell's differentiates itself by cooking its potato chips by hand using the finest home-grown potatoes.
All the chips are produced on the farm where the potatoes have been grown, so Tyrrell's are in total
control of the process 'from seed to chip'. (The company was set up by a potato farmer, who saw crisp
production as a way to add extra value to his basic product, potatoes.)
 Branding. Tyrrell's marketing taps into the public's enthusiasm for 'authenticity' and 'provenance'.
Its crisp packets tell the story of Tyrrell's. Pictures of employees growing potatoes on the
Herefordshire farm and then cooking them illustrate the journey from 'seed to chip'.
 Quality. Tyrrell's chips are made from traditional varieties of potato and 'hand-fried' in small batches.

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 Distribution. Tyrrell's sells directly to 80 per cent of its retail stockists. Students from a local agricultural
college were employed to trawl through directories and identify fine-food shops to target with samples.
After winning their business, Tyrrell's develops the relationship through personal contact.
 Diffusion strategy. Selling to the most exclusive shops creates a showcase for Tyrrell's to target
consumers who are not sensitive to price, allowing it to grow profitably.
 New product development. The Tyrrell's product family consists of eleven potato chip varieties, and three
varieties of ‘furrowed’ (crinkle cut) crisps. However, in addition to potato chips, they also now produce a
range of vegetable crisps – including beetroot, parsnip and sweet potato – as well as apple crisps.
 Exporting. This has created a further sales channel through fine-food stores. Yet it has also forced greater
dependency on distributors, introducing an unwelcome layer between itself and its customers.
Case example: Contrasting strategies in the supermarket industry
The following case studies provide an insight into how two companies that operate within the same
market have chosen markedly different strategies. In each instance, the key aspects of how these
strategies are employed are illustrated.
Cost Leader – Walmart (which operates Asda stores in the UK)
Low prices – the company attempts to have lower prices for everyday brands than any competitors.
This means it avoids costly loss-leaders and the associated local press adverts to advertise these. Walmart
actually delivers on its low prices promise at the cost of lower gross margins to itself, made up for by
higher throughput and increased yield for each square foot of retail space it occupies. Prices are
naturally used to drive higher sales volume which, in turn, leads to greater buyer power for Wal-Mart in
relation to its suppliers.
Consumer-based store design – After consulting consumers, Walmart introduced initiatives such as wider aisles,
warm coloured carpeting, smiley faces on store displays and friendly greeters in store. These all helped raise sales.
Economies of scale in procurement – Walmart uses its large scale and geographical diversity to
negotiate lower prices from suppliers. Its advantage is so large that on some items it is not possible for
rival retailers to compete. Although this has created a PR backlash, Walmart's customers have come to
expect and demand the lower prices that this allows the company to pass onto them. It does, however,
remain a potential threat to the company in the medium to long term.
Inventory control – Every store is linked to Head Office where a record of every item scanned for sale is
recorded. This information is passed to the large regional warehouses (see below) automatically ensuring that
fast selling items are immediately shipped to stores. This ensures no store sells out of product that is selling well,
allowing Walmart to respond to customer demand in a way that few other stores can.
Innovative warehousing – Walmart operates a regional network of large warehouses, ensuring that at
all times, no store is more than a six hour drive away. This helps ensure the continuity of supply that is a
key plank of their strategy. Any new store to be opened must be within access of a warehouse with this
being a key part of site selection for new superstores.
Use of superstores – Along with its rivals such as K-Mart and Home Depot, Walmart uses a 'large store'
format. These merge the warehouse and retail operations to maximise the floor space used for selling.
This in turn allows for larger stock levels to be held on-site, reducing operational expenses which, in
turn, leads to lower prices for customers. Consumers are also attracted by the convenience of being able
to purchase clothing, groceries and electrical items from the same store.
Differentiation focus – Waitrose
Waitrose strategy – When talking about its own strategy, Waitrose refers to the concept of the ‘Waitrose
difference’: combining the convenience of a supermarket with the expertise and service of a specialist food
shop, with particular emphasis being given to the freshness and quality of the food being sold.
Market segmentation – Waitrose has traditionally been seen as targeting the middle and upper socio-
economic groups.
In particular, some commentators have noted that Waitrose’s strategy focuses on two specific market
segments: baby boomers (loosely, people born between 1945-1964) looking to trade-up to better
quality, and members of Generation X (loosely, people born between the 1960s and the 1980s) who
want quality food and drink to match their lifestyle. Accordingly, the business model is focused on
quality products, service and store environment.

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Focus on quality - However, while Waitrose’s management stress the importance of offering their
customers high quality products, they also point out that this doesn’t necessarily make Waitrose more
expensive than some of its competitors. According to the Managing Director (MD), ‘We are able to
match Tesco in more than 7,000 branded lines, and we are consistently less expensive than Sainsbury’s
on branded lines.’ (This is the basis of Waitrose’s ‘Brand price match’ scheme, which states ‘You won’t
pay more. We match Tesco’s prices on branded groceries.’
Nonetheless, the MD does recognise the relationship between quality and price, stressing that where
Waitrose’s prices are higher than competitors, it is because the quality of their products is much higher.
On the other hand, Waitrose introduced ‘Essential Waitrose’ which maintains the chain’s commitment
to quality, but offers customers lower prices. The advertising strapline for Essentials summarises the
positioning of the range: ‘Quality you’d expect at prices you wouldn’t.’
Supply chain – Waitrose maintains product quality by investing in the supply chain and developing long-
term relationships with their suppliers. For example, by paying farmers above-market prices for the produce
they supply – and locking them in to exclusive relationships – Waitrose’s farmers could then invest in
better technology and upgrade their equipment, while other farmers struggled to reduce costs.
Local sourcing and provenance – Alongside the overall importance which Waitrose places on quality, it
also emphasises the provenance and traceability of its food. Provenance has become an increasingly
important element of differentiation for retailers – supporting local producers is an important ethical
consideration for shoppers when choosing grocery products. Many shoppers are also prepared to pay
higher prices for locally produced foods, and foods which can be traced back to their source – because
this increases customers’ confidence in the quality of the products they are buying.
Store environment – Waitrose creates a unique customer experience through having wider aisles in its
stores than other supermarkets do, and setting its shelves up to promote the products, rather than sales
posters or promotions.
Brand loyalty – Traditionally supermarkets try to encourage customer retention by focusing on prices or
loyalty schemes (Tesco Club card, Sainsbury's Nectar card etc). Although Waitrose offers a loyalty card,
it differs from other supermarket loyalty cards by giving cardholders access to exclusive competitions
and offers – such as courses at Waitrose cookery school – rather than simply enabling them to collect
‘points’. Each month, one myWaitrose member wins £5,000 in Waitrose (or John Lewis) vouchers, and
ten runners-up each receive vouchers worth £500.
Ethical trading – Waitrose has been a leader in ethical trading. Initiatives it has launched include Bag for
Life, Environmental reporting, Fairtrade foods, partnerships with farms and dairies – supporting
responsible sourcing and treating suppliers fairly. Waitrose also champions British produce, thereby
reducing 'food miles' and treading lightly on the environment.
www.waitrose.com
Case example: Telstra – Telkom Indonesia joint venture
In August 2014, the Australian telecommunications and information services company Telstra finalised a
joint venture agreement with Telkom Indonesia (the largest telecommunication and network services
provider in Indonesia) to provide Network Application and Services (NAS) support to Indonesian
business, multi-nationals and Australian companies operating in Indonesia.
NAS support provides businesses with managed network and cloud-based communications services, and
the joint venture will be able to offer an integrated end-to-end service which is unique in the Indonesian
market. NAS will be bundled with Telkom’s connectivity and sold through Telkom Indonesia and
Telstra’s enterprise sales team.
From Telstra’s perspective, the joint venture accelerates Telstra’s growth in the rapidly growing Indonesia market
(south-east Asia’s largest economy) and across the south-east Asian region more generally.
Announcing the venture, a Telstra executive said, ‘We are looking forward to partnering with Telkom Indonesia,
a well-respected market leader, which has a large enterprise and government customer base and the broadest
reach of domestic connectivity in Indonesia. Indonesia is a fast growing NAS market and we believe the best
way to make inroads is by partnering a well-recognised and respected local player.’
He continued by saying that the joint venture is also aligned to Telstra’s strategy of supporting its
business customers around the world. The venture forms part of Telstra’s expansion plans for Asia, and
Telstra is ‘looking forward to giving our [business] customers local support, allowing them to focus on
their business rather than managing information technology and telecommunication as a business cost.’

4
Telkom highlighted that the deal will enable it to bring proven NAS solutions to Indonesia to assist businesses to
be more productive and competitive. Telkom’s CEO also stated ‘We believe the JV… will grow significantly not
only because of the partnership with Telstra, but also considering Telkom’s capabilities in network and data
centre, as well as [its] strong position in the enterprise market segment which is the target market of NAS.’
Case example: McDonalds
In its Annual Report for 2012, McDonald's states: 'We view ourselves primarily as a franchisor and believe that
franchising is important to delivering great, locally-relevant customer experiences and driving profitability.'
However, although the majority of McDonald's restaurants are franchised, around 20% are operated by the
company. (At the 2012 year-end, there were 34,480 restaurants in total; 27,882 were franchised or
licensed, and 6,598 were operated by the company itself.)
In the Annual Report, McDonald's management note that:
Directly operating restaurants is paramount to being a credible franchisor and is essential to providing
Company personnel with restaurant experience. In our Company-operated restaurants, and in collaboration
with franchisees, we further develop and refine operating standards, marketing concepts and product and
pricing strategies, so that only those that we believe are most beneficial are introduced in the restaurants.
McDonald's business model also enables it to deliver locally-relevant restaurant experiences to its
customers, within the context of being a global business.
In this regard, the Annual Report also stresses the importance of the alignment between McDonald's, its
franchisees and its suppliers in achieving success, which highlights the importance of supply chain
management in the health of the business.
More generally, the business 'Outlook for 2013' section in the Annual Report also provides an illustration
of the way the Ansoff matrix can be applied in practice. (Think about how McDonald's strategy
described below could be classified in relation to the matrix):
We anticipate a continued flat to declining informal eating out (IEO) segment in many of the markets
where we operated. Growing market share will remain our focus to attain sustainable and profitable
long-term growth.
McDonald's aims to highlight promotions of its core menu favourites, while strategically expanding its
menu with relevant new offerings across all parts of the day, including premium products that can
deliver higher average revenue per product sold. For example, it will look to introduce existing products
like wraps and blended ice beverages into new markets, and offer more of the unique flavour-based
promotional food events which have been successful so far.
McDonald's also aims to emphasise the day parts – like breakfast and extended evening opening hours
– which are still growing globally in both established and emerging markets.
Alongside this, the company aims to make its products more accessible to customers through new restaurant
openings, extended opening hours, and faster, more accurate service through innovative order taking.
Case example: Issues with joint ventures and the need for assurance
Based on an article by Singh, A. & Vaidya, Y., in The Economic Times, 16 July 2011, ‘Joint venture or misadventure?’
The number of new joint ventures in India increased from 10 in 2005 to 72 in 2009, with examples of
joint ventures in infrastructure, defence, insurance and retail sectors.
However, as the title of the article suggests, joint ventures can also be ‘risky adventures’ and this
highlights the need for careful review and precautions at every step of the process – from partner
selection, setting up and throughout the operation of the venture.
Although there had been a rise in the number of joint ventures in India, there had also been an increasing
number of prospective ventures being call-offs, and ventures being terminated – for example, due to a lack of
synergy between the partners or due to issues arising from cultural and professional differences.
The article reports that nearly 70% of investors back away from deals in emerging markets after
conducting an ‘enhanced integrity check’ on a partner company. It refers to one large potential
investment in the infrastructure sector where a joint venture was called off due to a last minute
detection of ‘legacy regulatory non-compliances and sugar-coated portrayal of facts.’
The article suggests that many such issues may not be identified by a cursory due diligence exercise, because they
are not lying on the surface and a ‘deep dive’ into a company’s affairs is required to get the intelligence out.’

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The article also highlights the following issues in different joint ventures:
 Breaches of terms and conditions had been ongoing since the beginning of the venture, but due to
the lack of a monitoring mechanism, this had never been detected and noticed.
 A venture partner was manipulating revenue-sharing agreements and over-charging shared costs
to the joint venture.
The article concludes ‘It has been observed that more and more corporations in India have started
following the global best practice of conducting enhanced integrity checks on the potential partner
before entering into a joint venture. Also, after setting up the venture, detective checks such as contract
compliance reviews and end-use monitoring are increasingly being undertaken.
In other words, the article is reinforcing the importance of assurance over the operations of the venture
and in ensuring that venture partners are complying with the terms of the venture agreement.
Worked example: Risk analysis
Consider the following investment opportunites:
Investment A guarantees to return £100,000 in one year, on an initial investment of £50,000.
Investment B will deliver either £200,000 or £0 on the same intial investment over the same period of
time with equal probabilities.
Solution
Investment A delivers a net return of £50,000 with a 100% certainty.
Investment B will deliver an actual net outcome or either £150,000 or (£50,000). Using probabilities of
50:50 the expected value outcome is £50,000 [(£150,000  0.5) + (£50,000  0.5)].
We would conclude that although the expected value of Investment B is the same as the outcome for
Investment A, it clearly presents a higher risk as there is a wide spread of possible outcomes with this option.
Case example: Starwood Hotels and Resorts
Starwood Hotels and Resorts Worldwide (Starwood) is one the world's largest hotel chains, with brands
in its portfolio including Sheraton, Le Meridien, and Westin Hotels & Resorts.
Starwood considers its hotels and resorts to be premier establishments with respect to desirability of
location, size, facilities, physical condition, quality and variety of service offered in the markets in which
they are located.
In its Annual Report for 2012, Starwood (a North American company) noted that it had significant
international operations, which included 164 owned, managed or franchised hotels in Europe, 71 in
Latin America, and 243 in the Asia Pacific region.
Importantly, the Report also noted that,
Our growth strategy is heavily dependent upon growth in international markets. As of December
31, 2012, 85% of our pipeline represented growth outside North America. Further, 60% of our
pipeline represents new properties in Asia Pacific, and 44% represents new growth in China alone.
If our international expansion plans are unsuccessful, our financial results could be materially
adversely affected.
This theme of growth, highlighted in the 2012 Annual Report, was reinforced in March 2013 when
Starwood announced that the company intended to increase the number of hotels under operation and
development in Latin America to 100 by the end of 2013.
The Co-President of Starwood Hotels and Resorts for the Americas Region, said,
In the last five years, our footprint in Latin America has expanded considerably to fulfil the
increasing demand in business and leisure travel that has resulted from rising wealth, global
business and a digitally connected world. We believe that demand for travel will continue to
increase in Latin America and to meet that demand, we aim to have 100 hotels…[in the
region]…by the end of 2013.
Starwood's Vice-president of acquisitions and development for Latin America highlighted the scope for
growth in the market:

6
There is still a great deal of opportunity, in world-class travel destinations like Mexico and Costa
Rica, under-hoteled markets such as Brazil, top performers like Chile and Peru, and foreign
investment favourites such as Colombia and Panama. We believe that we are best positioned to
capitalise on the many opportunities in the market, given the affinity to our brands and our know-
how of the region where we've been present for more than 40 years.
Case example: Joint ventures in China
In September 2012, the French resort operator Club Méditerranée announced it was negotiating with a
Chinese developer to form a joint venture to build its third luxury resort on Hainan Island.
At the time, Club Med's chief executive said that the company hoped to open five new resorts in mainland
China by 2015, by which time the company expected China to have become its second- biggest market.
In 2010, Club Med opened a ski resort in Yabuli, and it also has a second resort (a beach resort) at
Guilin. The chief executive did not disclose the cost of Club Med's investment in China to date, but he
said that developing a ski resort in Europe involved an investment of around €80 million, while a beach
resort would typically cost around €60 million.
Club Med's business model involves seeking partnerships with local developers as a way to expand its portfolio
worldwide. As the chief executive explained 'Leveraging on our brand as global resort, we take responsibility for
sales and marketing, while our joint venture partner will finance the construction of the resort.' The resort at Guilin
is a joint venture with a Taiwanese partner, while the Yabuli project involves a mainland Chinese partner.
In the six months to April 2012, there were 30,000 customers from China to Club Med resorts worldwide, an
increase of 31% from the same period a year earlier. The increase in revenue from Chinese visitors
increased a similar amount (up 33%) to just under €19 million for the same six month period.
Visitors from Brazil, Russia, India and China now account for around 20% of the Club Med group's
customers, and the chief executive said the group would continue to target visitors from these countries
in the light of depressed economic growth in the euro zone (Europe).
Based on: Li. S, (2012) 'Club Med in talks for third Hainan luxury resort.' South China Morning Post,
3 September 2012
However, not all joint ventures in China have been successful. Faced with a geographically vast but
promising market, and obscured by a number of complex and contradictory rules, many foreign firms
have entered China via joint ventures.
In theory, the case for joint ventures was compelling. The foreign partner provided capital, knowledge,
access to international markets, and jobs. The Chinese partner provided access to cheap labour, local
regulatory knowledge and access to what had previously been a relatively unimportant domestic
market. The Chinese government protected swathes of the economy from acquisitions, but provided
land, tax breaks and appeared to welcome investment.
However, in practice many of the arrangements have collapsed. There appear to have been three main
reasons for this: (i) Chinese companies have been happy to receive money and technology, but did not
want to be mere accessories to foreign firms; in many cases they had large-scale ambitions of their own;
(ii) The allocation of profits and investments between the parties was unclear, leading to frequent
disputes; and (iii) China itself has changed in recent years. Its hunger for foreign investors has been
satisfied as domestic capital has become more abundant.
Danone & Wahaha
The French food giant, Danone, is one company whose investment in China turned irrevocably sour.
Danone acquired a 51% stake in the Chinese firm Wahaha Beverage in 1996, with its Chinese partner
retaining the other 49%. Funding received from Danone also enabled Wahaha to invest in advanced
production facilities, so that it was able to increase its output significantly after 1996.
Wahaha is one of China's best-known brands of bottled water and drinks, but the joint venture deal saw
the Hangzhou Wahaha Group transfer the Wahaha brand to a Danone joint venture: Hangzhou Wahaha
Food. Under the terms of the deal, Wahaha was prohibited from making (and selling) products which
competed with Danone's range.
When the joint venture was formed, the Wahaha Group's only contribution to it was its ownership of the Wahaha
trademark. It was given a 49% interest in the JV in exchange for the JV having exclusive use of the trademark.
When Danone made its investment, Wahaha – which claimed still to have relatively little experience of
'business' – welcomed the opportunity to have a partner.

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Although Danone was the majority shareholder in the venture, and maintained a majority interest on
the board of directors, the day-to-day management of the joint venture was delegated to the chairman
of the Wahaha Group, Mr Zong.
Mr Zong ran the joint venture as if it was his own personal company (even appointing his wife and
daughter to management positions), but under his management, the JV became very successful;
gaining about 15% market share of the very large Chinese market for bottled water and beverages.
However, once Mr Zong and Wahaha became alive to the opportunities open to it, they took objection
to the fact they had to agree any plans or growth strategies with a foreign majority owner. From around
2000, Wahaha began to create and operate separate subsidiaries selling Wahaha-branded drinks,
competing directly with the joint venture, and therefore in violation of the joint venture agreement.
Danone and Wahaha subsequently became embroiled in a lengthy legal dispute which ended in
September 2009 when Danone agreed to sell its interests in the joint venture.
Commentators now point to the failed relationship between Danone and Wahaha as an example of the
tensions that arise as Chinese joint venture partners gain confidence and marketing prowess.
Based on and updated from: The Economist (2007) Wahaha-haha! The lessons from Danone and HSBC's
troubled partnerships in China, 19 April.
Case example: Dyson moves production to Malaysia
In 2003, the entrepreneur James Dyson became embroiled in a row over exporting jobs after he
announced plans to switch the production of washing machines from his base at Malmesbury, Wiltshire
in the UK, to Malaysia, with the loss of 65 jobs.
The decision meant the end of manufacturing in Britain for Dyson, because the company had also
switched production of vacuum cleaners to Malaysia a year earlier, with the loss of 800 jobs. At the
time, production costs in Malaysia were 30% lower than in Malmesbury.
Unions reacted furiously to the announcement of the job cuts, but there was a more restrained response
from the Trade Department (now the Department of Business, Innovation and Skills), where regret at
the job losses was mixed with praise for Mr Dyson's contribution to innovation.
The joint general secretaries of Amicus, the engineering union, were scathing in their condemnation.
One compared Mr Dyson to the pop star Britney Spears singing 'Oops I did it again' after the previous
year's vacuum production decision. 'He has no commitment to his workforce and this is is a desperately
bad example to the rest of the sector.'
The other general secretary commented: 'This latest export of jobs by Dyson is confirmation that his
motive is making even greater profit at the expense of UK manufacturing and his loyal workforce. Dyson
is no longer a UK product.'
The unions sought to increase pressure on ministers to intervene to slow the loss of manufacturing jobs
in the UK and to prevent jobs being exported. The growth of India as a software and call centre
economy has seen British companies transfer thousands of jobs overseas, while low-cost east European
companies have benefited from the switch of manufacturing capacity.
In a brief statement following the announcement of the relocation plans, Dyson emphasised the way the
business had been refocused; with production moving overseas, but research and development being
retained and expanded at Malmesbury.
The company said switching vacuum cleaner production to Malaysia had secured 1,200 jobs at
Malmesbury as well as achieving a substantial increase in output and a successful launch in America.
Following the switch in production to Malaysia, a third of the workforce at Dyson's Malmesbury
headquarters workforce had an engineering or scientific background. James Dyson, the company's
founder, said that the switch in the production of vacuum cleaners enabled the company to recruit an
extra 70 engineers and scientists.
However, local politicians joined in the concern about the loss of manufacturing jobs, with the MP
whose constituency includes Malmesbury arguing 'If excellent, high-tech British made products cannot
make it, what hope is there for anyone else?'
[Based on: Gribben, R. (2003) Dyson production moves to Malaysia, Daily Telegraph, 21 August]

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More recently, in February 2013, Dyson opened a new factory in Singapore, manufacturing motors for
its products. The company said the new factory would give it greater control over production and its
intellectual property. Four million digital motors are expected to be produced each year on the
automated production line, which consists of 50 robots.
The company cited growing demand for its technology from markets including the US, Japan and China
as the driving force behind the expansion.
However, Dyson said the expansion would also enable it to increase its headcount in the UK; and it announced
plans to hire an extra 100 engineers in Wiltshire to design the 'next generation' of Dyson products.
Case example: Impact of strong pound on Burberry’s profits
In April 2014, the luxury retailer Burberry warned that the strength of the pound could have a ‘material
impact’ on its profits for the fiscal year 2014/5.
The UK-based company said that if exchange rates remained at their current levels, this could reduce
reported retail and wholesale profit for the full year 2015 by around £30 million.
The pound has gained in value against all major world currencies during 2013/4, bolstered by signs that the
UK’s economic recovery is out-performing its peers. However, analysts have warned that Burberry’s high
proportion of international sales make it vulnerable to ‘negative headwinds from the strong pound.’
Burberry generates nearly half its sales in the Asia Pacific, and one analyst noted that a strong pound
relative to Asian currencies could have a doubly negative effect: ‘The higher the pound relative to Asian
currencies, the relatively less competitive the exports become to comparable local products, not to
mention each sale is worth less when converted back to pounds.’
However, the analyst also noted that Burberry could probably raise its prices in foreign currencies without losing
customers, because one of the advantages of luxury products is that they have a lower price-elasticity of demand.
Source: Burberry warns strong pound will hit profits, The Telegraph, 16 April 2014
Case example: Hornby’s supply chain and foreign exchange problems
The model train company, Hornby, reported worse-than-expected losses of £1.2 million for the year
ended 31 March 2014.
A major factor in the company’s poor overall performance was the problems it had experienced with its
Chinese supply chain. Its main Chinese supplier, Sanda Kan, failed to deliver products of sufficient
quality, and Hornby also found itself opening boxes of models from the supplier which did not contain
the full volume of products which had been ordered.
In the light of these problems, Hornby broadened its supplier base to ten companies in China and India,
and ended its relationship with Sanda Kan – which previously made about 60% of Hornby’s train set
and Scalextric ranges.
In January 2014, Hornby had predicted its losses for the year to 31 March 2014 would be £1 million,
but foreign exchange movements led to a further £200,000 to be written off its bottom line. However,
this write off was also linked to the problems with Sanda Kan.
The additional £200,000 loss in the accounts resulted from currency movements on Hong Kong dollars which
Hornby had been holding to pay Sanda Kan for tools, parts and products it had been scheduled to make.
When Hornby ended its contract with Sanda Kan it no longer needed to make these payments and so it
converted the money back into pounds. This crystallised the losses which had arisen because sterling had
strengthened against the Hong Kong dollar during the period in which Hornby had been holding dollars.
Critics pointed out that Hornby’s problems demonstrate the risk of inflexible hedging strategies, in
which foreign currency is bought in advance and held on account. If the foreign currency is
subsequently not needed – as was Hornby’s experience, due to the problems with Sanda Kan – a
company may be left with superfluous foreign currency which could also depreciate against sterling.
Based on: China supply chain problems derail profits at model train set firm Hornby,
www.thisismoney.co.uk, 8 April 2014
Hornby warns foreign exchange hit linked to supply woes will drag company to worse-than-expected
£1.2m loss, www.thisismoney.co.uk, 9 April 2014

1
Chapter-3
Strategic implementation
Case example: Compaq and Hewlett-Packard's merger
Historically, the perceived wisdom on Wall Street has been that mergers are exciting; and they create
value. Moreover, the bigger the merger, the better.
However, more recently, mergers, particularly among large-cap companies, have not been looked upon
so favourably, and the results of some high profile mergers support this scepticism. Consider the merger
of Citibank with Travelers. The price of a Citi share at the time of the merger (October 1998) was
$32.50. By 2008, shares sold for less than $25. So, there had been about a 25% reduction in lower
shareholder value in 10 years.
The merger between Time Warner and AOL was even more famously unsuccessful. At the time of the
merger (January 2000), Time Warner stock sold for $71.88. By 2008, shares in Time Warner could be
bought for less than $15.
The problem with many of the ill-fated mergers is that they were the results of misguided intentions.
Often, they were driven by management's desire for aggrandizement; the desire simply to be bigger
than competitors. At other times, mergers were fuelled by a desire for diversification. And, egged on by
aggressive investment bankers and a receptive stock market, the deals got done.
However, not all mergers are doomed to failure. Of the deals announced in the early years of the 21
st
century, few attracted as many negative views as the combination of Hewlett-Packard and Compaq
Computer. When it was announced in September 2001, the HP-Compaq merger was met with almost
universal scepticism and cynicism. And doubts about the merits and benefits of the merger continued
long after it was implemented in mid-2002.
Yet, the merger turned out to be a success – whether measured by market share, market leadership or
increased shareholder value.
Ben Rosen, who had been non-executive chairman of Compaq Computer until 2000, was not surprised by
this success though. He said he thought the merger sounded like a terrific deal when it was announced,
because there was a good fit between the two companies. Most of Hewlett-Packard's weaknesses were
complemented by Compaq's strengths, and vice versa. In other words, both companies should benefit
from the merger, and therefore it was a merger of two big companies which ought to work.
However, Rosen's view was not widely shared, and there was vociferous opposition to the merger.
Writing in the New York Times in February 2002, Walter Hewlett, son of the HP co-founder, Bill Hewlett,
said 'The Compaq merger is a dangerously risky, a very costly, step... The risk is great that trying to meld
two disparate companies and cultures together in the computer business will come to grief.'
Other observers were equally caustic. Shortly after the merger announcement, Todd Kort, principal
analyst for Gartner Research was quoted in Time magazine saying: 'This is not a case of 1+1 = 2. It's
more like 1+1 = 1.5.'
IDC analyst Roger Kay said, 'Dell must be totally gleeful, because these guys are going to spend all their
time untangling themselves.' Apparently, Michael Dell, CEO of Dell Computer was even reported to
have called the merger the dumbest deal of the decade.
For a while after the merger was implemented, the doubts expressed by its critics seemed justified. The
integration of the two companies and the execution of the merger went poorly. Many of the best and
brightest staff from Compaq left; some voluntarily, others not.
Hewlett-Packard CEO Carly Fiorina was the architect of the merger, and its champion. She made it
happen despite fierce opposition from the Hewlett and Packard family members, their foundations, and
from other large shareholders. But while she did the deal, she simply did not have the skills to manage
one of the world's largest technology companies. For almost three years (while Fiorina was CEO of the
merged entity) it failed to realise the potential of the combined companies. Criticism of the merger
continued, and showed little sign of abating.

2
In Febraury 2005, Carol Loomis wrote an article in Fortune magazine, arguing that:
This was a big bet that didn't pay off, that didn't even come close to attaining what Fiorina and HP's board said was in
store. At bottom they made a huge error in asserting that the merger of two losing computer operations, HP's and
Compaq's, would produce a financially fit computer business......................................... It must deal with both
the relentless competition in computers and its own particular need to battle on two fronts, against both IBM and Dell.
However, six weeks after the publication of this article that pilloried Hewlett-Packard, the board hired Mark
Hurd to replace Fiorina. Only then did the company acquire the management skills needed to take the raw
material that was there and transform it into a world leader in technology. In the three years since Hurd
became CEO, the results have been truly remarkable. He took the pieces assembled by Fiorina, applied his
management skills to them, and created a growing, profitable and increasingly valuable company.
The eventual success of the merger of the merger can be seen by comparing the movement in share
prices of Dell, IBM and Hewlett Packard between May, 2002 and April 2008. Over this period, Dell,
which was once the darling of the business press and industry analysts, had seen its share price fall by
20%. IBM's share price rose by 42%, and HP's by 163%. The S&P 500 rose by 28% over the same time.
This begs the question of where the pundits who criticised the merger went wrong. At one level, they
applied a generic logic (that big mergers are bad) rather than looking analytically at whether there is a
real fit between the two merging companies. Perhaps more importantly, though, for the initial three
years that the merged company was struggling, the struggles were attributed to the merger. However,
the merger wasn't the problem; it was the management. All Hewlett-Packard needed was strong
management (as from Mark Hurd) in order to realise the latent potential of the merged company.
Based on: Rosen, B. (2008), The merger that worked: Compaq and Hewlett-Packard, Huffington Post,
9 April,www.huffingtonpost.com
Case example: Daimler/Chrysler
In 1998, Daimler Benz, the German car manufacturer best known for its Mercedes premium brand,
merged with the US company, Chrysler, a volume car manufacturer. The merged company, Daimler
Chrysler, became the world's largest car manufacturer.
However, although the deal was originally billed as a merger of equals, in practice it was a takeover by
Daimler. Interestingly, by March 2001 the share price for the new group had fallen to just over 60
percent of what it had been in November 1998.
A number of reasons were identified for the poor performance of the Daimler/Chrysler group:
 US and German business cultures were different. Possibly because of cultural problems in the
new group, many key Chrysler managers left after the merger.
 Mercedes was a premium brand which had been extended to making smaller cars. Chrysler
depended on high volumes, not a premium product. Therefore, the distinction between 'premium'
and 'volume' businesses got blurred.
 The new group did not properly exploit economies of scale, such as sharing components. There was a
degree of technology-sharing among the engineers, and this did result in some success stories, such as
the Chrysler 300 model. However, many critics argued that the merger could not deliverthe
synergiesthathadbeenexpectedbecausethebusinesseswereneversuccessfully integrated. In
effect, they seemed to be running two independent product lines: Daimler and Chrysler.
 Productivity and efficiency at Chrysler was far lower than industry norms. (In 2000, each vehicle
took Chrysler around 40 hours to make, compared to approximately 20 for the American factories
of competitors such as Honda and Toyota.) In addition, its purchasing was inefficient, and fixed
costs were too high for the size of the company. Overall, Chrysler's performance was much weaker
than Daimler had realised going into the deal.
Ultimately, the Daimler Chrysler merger failed to produce the trans-Atlantic automotive powerhouse
that had been hoped for, and in 2007 Chrysler was sold to a private equity firm that specialises in
restructuring troubled companies. In December 2008, Chrysler received a $4bn loan from the US
Government to stave off bankruptcy. Nonetheless, Chrysler eventually filed for bankruptcy in April 2009.
While it was by no means the only reason why it failed, the failure to implement change effectively and to
integrate the companies after the merger, was a major contributing factor to the failure of the merger.

3
Case example: Competition Authorities
The activity of the Competition and Markets Authority (previously the Competition Commission) in the
UK is a good example of the way governments may approach the problem of monopoly, or other anti-
competitive market structures.
The Competition and Markets Authority (CMA) is an independent, non-ministerial government department,
whose primary duty is to promote competition, both within and outside the UK, for the benefit of consumers.
Its responsibilities include:
 Investigating mergers which could restrict competition
 Conducting market studies and investigations in markets where there may be competition and
consumer problems
 Investigating where there may be breaches of UK or EU prohibitions against anti-competitive
agreements and abuses of dominant positions
 Enforcing consumer protection legislation to tackle practices and market conditions that make it
difficult for consumers to exercise choice
Although the CMA is specifically a UK authority, other countries have similar authorities, which aim to
curtail anti-competitive behaviour.
For example, in Australia, the mandate of the Australian Competition and Consumer Commission
(ACCC) is to protect consumer rights, business rights and obligations, perform industry regulation and
price monitoring, and prevent illegal anti-competitive behaviour.
In the USA, the United States Department of Justice Antitrust Division is responsible for enforcing US
antitrust laws. It shares jurisdiction over civil antitrust cases with the Federal Trade Commission (FTC)
and often works jointly with the FTC to provide regulatory guidance to businesses.
In addition to regulatory bodies in individual countries, there are also supranational bodies that regulate
restrictive practices. The European Commission and the national competition authorities in all EU
member states co-operate with each other through the European Competition Network (ECN).
This creates a mechanism to counter companies that engage in cross-border practices designed to
restrict competition. As European competition rules are applied by all members of the ECN, the ECN
provides a means to ensure they are effectively and consistently applied. Through the ECN, the
competition authorities from different EU member states are able to inform each other of proposed
decisions and to pool their knowledge.
Case example: General Motors and Peugeot Citroen
In February 2012, General Motors (GM) and PSA Peugeot Citroen (PSA) announced a global alliance
which the two companies said would save them $2bn annually within about five years (by combining
purchasing) and would see them develop cars together. The two firms said they hoped to launch their
first common design by 2016.
The US and French carmakers said they would share vehicle platforms, components and modules, and
create a global purchasing joint venture to buy commodities and parts that would have combined
purchasing power of $125bn a year. Additionally, the alliance is exploring areas for further co-operation,
such as integrated logistics and transportation. GM's chief executive described the deal as 'a broad-scale
global strategic alliance that will improve each company's competitiveness and will contribute to the long-
term profitability in Europe particularly, but around the world as well.'
The alliance will give GM and PSA, which have joint sales of about 12m units, global industry leadership
in production of 'B' compact and 'D' upper-middle segment cars.
However, both companies stressed the alliance was not a merger, and said that it would not change
either company's existing plans to rationalise their operations in Europe and to return them to
sustainable profitability. At the time the alliance was announced, both PSA and GM's Opel unit were
losing money and had more plants than they needed. GM and PSA said the cost synergies from the
alliance would be split evenly between the two carmakers, which will continue to compete and sell cars
under their own brands and on a competitive basis.
PSA's chief executive said that the alliance grew out of 'a growing realisation of very concrete synergies
that exist between our companies.'

4
GM and PSA's alliance will initially focus on small and midsize cars, multipurpose vehicles and small
sport utility vehicles (or crossovers). The two companies said they would also consider developing a new
common platform for low-carbon vehicles.
However, while GM and PSA highlighted the potential benefits of the alliance, history shows that
alliances between rival carmakers have a patchy track record. Daimler demerged from Chrysler in 2007
after an acrimonious partnership that lasted nine years, and Volkswagen and Suzuki went to arbitration
after an alliance they concluded in 2009 ran into difficulties in 2011.
Commenting on GM and PSA's alliance, the head of European automotive research at Credit Suisse said
'The European auto industry is running out of options. This [alliance] is obviously worth the effort, but
whether it's going to be successful, who knows?'
Based on: Reed. J, (2012) GM and Peugeot confirm alliance, Financial Times, 29 February, www.ft.com
Case example: Google
Google encourages employee risk-taking and innovation.
When a Vice President in charge of the company's advertising systems made a mistake, costing the
company millions of dollars, she was actually commended by Larry Page (one of the co-founders of
Google) who congratulated her for trying, noting that he would rather run a company in which people
are moving quickly and trying to do too much, rather than being too cautious and doing too little.
This kind of attitude towards acting fast and accepting the cost of mistakes as a natural consequence of
operating at the cutting edge, may help explain why the company has performed ahead of competitors
such as Yahoo!
Google's culture is also reflected in their approach to decision-making. Decisions at Google are made in
teams, rather than being made by a senior person and then implemented top-down. It is common for
several team members to tackle a problem and for employees to try to influence each other using
rational persuasion and data. Gut feeling has little impact on the way decisions are made, however.
Rather than saying, 'I think…', employees are encouraged to say, 'The data suggests…'
A key issue for Google is how to maintain its values as it expands. It is a company which emphasises its
desire to hire the smartest people, but this could mean that it will attract people with big egos who are
difficult to work with. Google realised that its strength comes from its 'small company' values, which
emphasise risk taking, agility and co-operation. Therefore, the recruitment process is very important at
Google. The process is extremely rigorous, and each candidate may be interviewed by as many as eight
people on several occasions. Through this scrutiny, the company is trying to ensure it selects 'Googley'
employees who will share the company's values, perform at high levels, and be liked by their colleagues
within the company.
Case example: McDonald's Fast Food Restaurants
Society's attitudes to fast food have been changing in the last few years, and if the fast food industry is
to remain successful, it needs to recognise these shifting customer needs and respond to them.
Concerns about rising obesity levels and advances in healthcare have highlighted the importance of a
healthy diet. Increased access to mass communications (television, internet) have meant that consumers
are becoming more informed about issues and are demanding better choices in convenience foods.
Meeting stakeholder needs
Changing customer needs and requirements illustrate the more general issue that the business
environment is not static, but evolves over time, reflecting changes in the broader social environment.
However, customers are not the only important stakeholder whose interests McDonald's need to consider.
Other stakeholders include:
 Business partners – including franchisees and suppliers (Many of McDonald's restaurants are run
by franchisees).
 Employees – When taken together, McDonald's corporation and its franchisees employ
approximately 1.5 million people, with more than 30,000 restaurants spread across about 120 countries.
 Opinion leaders – including governments, the media, health professionals and environmental
groups. McDonald's is very conscious of its corporate social responsibility, and constantly looks to
adapt its operations to increase the positive impact it can have on society.

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