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Q1. You can choose any international company, who has faced anyone of the country risks: political, economic, operational or competitive, in the last 12 months in one of the following regions: 1) South America, 2) Africa, 3) Central Asia, and 4) the Middle East. Identify, analyse and manage the risk as if you were employed as a consultant by your chosen company. Any risk management technique which has already been adopted and utilised by the chosen company will NOT be accepted in your answer. (500 words)

Q2. You have been promoted to HR Director in the Swedish company which manufactures and sells medical equipment (MRI scanners). Being very hi-tech, the equipment has until now been made in Sweden by the company’s skilled team. Your employer has just purchased a factory in Mexico for the manufacture of medical equipment that has been selling well in the USA. There is a budget for three expatriate managers to be sent to manage its operation in Mexico for four years. The CEO has asked you to recommend the job title for three expatriates with your justification for each job title and prepare a plan to help these expatriates’ early settlement in Mexico. (500 words)

Q3. Choose any international company that has outsourced one of its business functions to a local company in their international operation (For example DHL’s use of a local Indian company for its inbound freight distribution in India) and critically discuss the benefits and drawbacks of its outsourcing arrangement with the local company. An outsourcing arrangement between the two companies should post 2010. (500 words)

Q4. Recently, the notion of ‘Industry 4.0’ or ‘Fourth Industrial Revolution has become the centre of attention in the business world. Some associated technologies, such as additive manufacturing, advanced robotics, Drones, IoT, Blockchain, and AI, have been rapidly developing and many firms are contemplating different ways to exploit these technologies. Choose any international company utilising one of these technologies and discuss their journey in moving away from its traditional business to a more sustainable business. (500 words)

Appointing a division manager in France


Helvetica Chemical was a Swiss-based multinational company engaged in pharmaceuticals, agrochemicals, dyestuffs and industrial chemicals. It operated in more than .60 countries and was organised as a matrix of product and country divisions. The corporate headquarters in Basel was staffed with global central function services establishing and supervising policies in research, IT, legal, personnel and finance. In each country there was a Group Company Managing Director responsible for the total activities of local divisional units and for the overall financial results of the country. Each Division General Manager had dual reporting: to the Group Company Managing Director (country head) and to the Global Division Director in Basel responsible for the worldwide performance of the product line. The case describes how a staffing decision can raise a general global strategic issue.

In France, the Group Company Managing Director, Lucien Boyer, was about to retire and the corporate headquarters designated Pierre Jourdan, General Manager of the French Pharmaceutical Division, to replace him. Jourdan’s promotion opened the position of the Pharmaceutical Division in France, and the issue was to appoint a replacement for him. Two potential candidates had been identified.

(1) Philippe Dupont, a French national, with a doctoral degree in pharmacy from Toulouse University, had been recruited two years previously from a competitor as Marketing Manager. He had had his entire career in France and had a deep experience of the French pharmaceutical industry. Since his recruitment at Helvetica, he had obtained excellent results. Dupont was Jourdan and Boyer’s preferred choice.

(2) Michel Gamier, a Canadian from Quebec, who had extensive international experience as a Marketing Manager in Canada, Brazil and the United States. He had spent two years in Basel at the corporate office in the Strategic Planning Department and was at present managing the Pharmaceutical Division of Helvetica Chemical in Morocco, where he obtained excellent results. Garnier was the preferred choice of the Basel Global Pharmaceutical Division.

Whom to appoint?

Answers to the question provoked very emotional attitudes and heated debates. For some, it was obvious that Dupont was the best choice, given his knowledge of the French market, his experience and the support of the French management structure. For some others, Garnier should be appointed, because he would bring a global perspective that could enrich the French subsidiary and position Helvetica Chemical as a true global player capable of transcending national barriers. After the first instinctive reactions, it became obvious that the appointment decision was more than a pure personnel management issue, it was really a global strategic issue. In practice, both choices were valid, but each conveys a fundamentally different message to the employees, competitors and customers. If this kind of decision systematically obtains the same kind of answer, it will ‘drive’ the strategy of the company in a particular dimension.

Dupont was the perfect choice for a strategic orientation based on local responsiveness.

His French education and experience with the market made him a perfect choice for the French subsidiary. No doubt, he would perform well and Jourdan would be happy to supervise a colleague with whom he could share the same ‘culture’.

Garnier brought a ‘global’ perspective and his appointment would be an opening into the walled city of a national subsidiary. His international experience would give him the capability to transcend national cultures and to enhance a global corporate mindset. From an operational point of view, he would bring different methods and approaches to the French subsidiary.

The final choice depends upon the strategic orientation that Helvetica Chemicals wants to give to its global operation. If, from a competitive viewpoint, there is little advantage to be gained in adopting cross-border integration and the prime objective is to let local subsidiaries focus on their own market, the choice of Dupont is the most effective. If, on the contrary, it becomes strategically important to adopt a worldwide co-ordinated strategy, then it is time to implement a global human resource management (HRM) approach that fits with this objective and Garnier would be the recruit of choice.

This example illustrates the four kinds of issues presented in Figure 12.1: assignment of personnel, expatriate management, localisation and skills development.

© Lasserre Global Strategic Management 2nd ed. 2007

33512 GLOBAL INNOVATION

MINI-CASE 12.1

Global giants’ R&D networks – Siemens and BASF

R&D at Siemens

Siemens is a global electronics and electrical
engineering corporation, operating in energy,
healthcare, infrastructure and industrial solu-
tions sectors. Founded in Germany, the company
has activities in nearly 200 regions, with 336,000
employees working at 1640 locations around the
globe, including 176 R&D facilities. Its turnover
in 2010 was €75 billion.

Innovation is at the core of its success.
According to Peter Losgher, president and chief
executive: ‘We closely align R&D activities with
business strategy, hold key patents and have a
strong position in both established and emerging
technologies. Our goal is to be a trendsetter in all
of our businesses.’14

In 2010, Siemens invested approximately
€3.8 billion in research and development (5.1% of
sales), of which around €1000 million was devoted
to developing green technologies. In 2011 Sie-
mens generated 8600 inventions thanks to its
27,800 researchers and developers worldwide.

The R&D network is organized at the corpo-
rate level and within divisions and business
units.

Corporate level R&D15

R&D at corporate level is managed within Cor-
porate Research and Technology, the Corporate
Development Center (CDC) and the Corporate
Intellectual Property and Functions.

CTT has a budget of around €280 million, and
employs 1770 people who work on key technolo-
gies that are strategically important and can be
applied across sectors. One of the key functions
is the corporate Technology Strategic Market-
ing that identifies future technologies using a
methodology called ‘Pictures of the Future’ and
informs the sectors about their potential future.
They also use global account managers to col-
lect technology requirements from the various
Siemens industry sectors and communicate
that information to the CTT researchers. CTT
researchers are organized in clusters, grouping
experts in domains such as Materials, Electric
and Energy, Process and Production, Software
Security and Systems.

There are 13 Corporate Research and Technol-
ogy centers across the world:

• Berlin (Germany): 85 researchers

• Munich (Germany): largest corporate location
with 958

• Erlangen (Germany): 379 researchers

• Vienna (Austria): 80 researchers

• Moscow (Russia): 30 researchers

• St Petersburg (Russia): 30 researchers

• Princeton (USA): 369 researchers

• Berkeley (USA): 12 researchers

• Bangalore (India): established in 2004, 105
employ ees

• Singapore: 6 researchers working on water
technology

• Beijing (China): established in 1998, 140
researchers

• Shanghai (China): 64 researchers

• Tokyo (Japan): 8 researchers.

The sites in China and India work on smart
technologies (low-cost innovations suitable for
emerging economies).

The Corporate Development Center (CDC)
employs 3160 software developers working on
new products and services. Locations for these
activities are in Europe, India and China.

The Corporate Intellectual Property and Func-
tions (CT IT) with 500 specialists in 19 locations
around the world are in charge of registering and
safeguarding intellectual property rights. In 2010
the CT IT registered 8800 innovations and 4300
patents.

Another feature of the Siemens R&D system
is to maintain strategic partnerships with lead-
ing research institutions such as the Technical
University of Denmark (DTU), the Technische
Universität München, the RWTH Aachen Uni-
versity, the Technische Universität Berlin,
Massachusetts Institute of Technology and UC
Berkeley in the USA, as well as Tongji University
and Tsinghua University in China. This is done
both by the corporate centers and divisional
development units.

Lastly, Siemens has initiated the Strategic
Technology Accelerator (STA) that organizes
the spin-off of new ventures out of the Siemens

Lasserre, Philippe. Global Strategic Management, Macmillan Education UK, 2017. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/kingston/detail.action?docID=6234922.
Created from kingston on 2020-10-14 13:17:43.

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336 III MANAGING GLOBALLY

organization and supports these new ventures
financially, legally and organizationally.

The divisional R&D

Divisional R&D centers are distributed regionally
and provide local product development for the
benefit of business units.

R&D at BASF16

BASF is a global chemical company founded
in Germany. Its sales were €63.9 billion in
2010; 109,000 employees work in six business
segments: Chemicals, Plastics, Performance prod-
ucts, Functional solutions, Agriculture solutions
and Oil and Gas. It operates 385 production sites
and 9600 employees work in 70 R&D centers
worldwide with a budget in 2010 of €1.5 billion.
The distribution of R&D sites is:

• Europe: 33 sites and 7500 employees

• Americas: 25 sites and 1550 employees

• Asia Pacific: 8 sites and 550 employees.

BASF focuses on the five growth clusters: energy
management, raw material change, nanotechnol-
ogy, plant biotechnology, as well as industrial or
‘white’ biotechnology.

In addition to this direct effort, BASF has cre-
ated two subsidiaries:

• BASF Venture Capital GmbH is a venture capi-
tal company that invests in start-up companies

and venture capital funds worldwide. It also
supports innovative start-ups, both financially
and with expert know-how from the BASF
Group.

• BASF Future Business GmbH has the goal of
tapping into new business fields for BASF. Spe-
cial areas of innovation include solving issues
in the fields of energy management, electron-
ics, health and the environment.

BASF has developed a management approach
called Verbund that integrates manufacturing
and research. Production plants at large sites
are closely interlinked and in addition, the by-
products of one plant can be used as the starting
materials of another. BASF considers that Ver-
bund is the foundation of its competitiveness in
all regions.

There are six Verbund sites and some 385 pro-
duction sites. The six Verbund sites are in:

• Ludwigshafen (Germany): the world’s largest
integrated chemical complex, the location of
BASF Group’s technology platforms and com-
petence centers

• Antwerp (Netherlands): the second largest site

• Nanjing (China): a 50:50 joint venture between
BASF and China Petroleum & Chemical Com-
pany (SINOPEC)

• Kuantan (Malaysia)

• Freeport (USA)

• Geismar (USA).

Questions
1 How does the global management of R&D at Siemens and BASF compare?
2 What are the potential benefits of the Verbund concept?

Summary and key points
1 International product life cycle

a How product innovations and production migrated from country of origin of innovative firms
to other country subsidiaries through a three stage sequential process: (1) innovative country;
(2) second-tier country; (3) third-tier country, mainly developing world

b This model cannot explain the globalization of innovation that occurred after the 1960s

2 Global R&D network

a Global firms more and more use a distributed network of R&D centers involving the collaboration
of multiple sites scattered around the world

b Main motivations to set up a center in a particular country are:
• proximity to local markets

Lasserre, Philippe. Global Strategic Management, Macmillan Education UK, 2017. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/kingston/detail.action?docID=6234922.
Created from kingston on 2020-10-14 13:17:43.

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1. The Sainsbur y’ s Outsource

This case material is taken from publically available comment from industry

experts, the websites and press releases of the Outsourcing organisation

(Sainsbury’s) and the vendor supplier (Accenture). The purpose of this

collation is to extract from the experiences of this outsource key learning

points and is in no way intended as commentary on the effectiveness or

otherwise of the main participants in this unsuccessful exercise.

1.1. Information Age (IA) Interview w ith Margaret

Miller (MM)

Margaret Miller, Sainsbury’s business transformation director and CIO, talks

about the company’s ground-breaking outsourcing deal with Accenture.

Background to the deal

Sainsbury’s prides itself on its traditional approach to food retailing. But that

traditionalism used to permeate through to its IT operations too.

When Sir Peter Davis took over as CEO at the beginning of 2000,

Sainsbury’s IT systems were a mess. The company ran 13 different point-of-

sale systems, some staff were still running Windows 3.1 on their desktop

PCs, and email was provided by a green screen, mainframe-based system.

The under-investment in IT systems directly impacted Sainsbury’s ability to

respond quickly to market changes. For example, when rival Tesco launched

its hugely successful Clubcard loyalty scheme, it took Sainsbury’s 16 months

to respond.

The company’s IT systems needed to be modernised from top-to-

bottom. In a bid to tackle this huge task, Sainsbury’s decided to take the

radical option of outsourcing its entire IT function to services giant Accenture

in a seven year, £1.8 billion deal. Business transformation director, and CIO

Margaret Miller, was put in charge of managing Sainsbury’s relationship with

Accenture and making sure it delivers value for money. She tells Information

Age why Sainsbury’s decided to outsource and how she manages the

relationship.

The Interview

Information Age (IA): Sainsbury’s outsourcing deal with Accenture is

arguably one of the most far-reaching in the UK. What challenges was

Sainsbury’s facing when it decided to embark on the deal?

Margaret Miller (MM): The genesis was when Sir Peter Davis [Sainsbury’s

CEO] re-joined Sainsbury’s in 2000. He realised that we had under-invested

horribly in three areas: the stores were looking old and tired, the supply

chain infrastructure was not appropriate for today’s world, and the IT

systems were far too expensive to run and were largely inhibitors to business

change, rather than enablers.

IA: In what way were the IT systems holding back the company?

MM: Pre-outsourcing, more than 95% of the IT budget was spent ‘keeping

the lights on’. Because there had not been a strong architectural direction

behind the IT spending, a huge amount of money had been spent tactically,

which is the best way of wasting money in IT. Sainsbury’s ended up with an

environment that was very complex and very expensive to support. That left

us with very little money to spend on building new systems and capabilities.

IA: How did Sainsbury’s come to the decision to outsource and how did

Accenture emerge as the winner in the bidding process?

MM: Sir Peter Davis had worked with Accenture before and it was largely his

decision that we should outsource with them. There was no formal public

bidding process. There were other options considered, but it wasn’t a public

tender in the traditional sense. When you look at the alternatives, there are

a lot of suppliers who can do service delivery outsourcing, such as CSC, EDS

and IBM. But if you look at how many can do the transformational

outsourcing that we wanted, I don’t know anybody else who would be a

candidate.

IA: So how does the outsourcing deal with Accenture work?

MM: We entered into a seven-year, £1.8 billion deal whereby Accenture

guaranteed to reduce the cost of operations – the cost of keeping the lights

on – by almost 50% over the period. That was predicated on Sainsbury’s

replacing all its legacy systems with systems based on uncustomised or

minimally customised packages on a standard architecture.

That meant all our systems – from the desktop to the general ledger, from

the human resources system to our customer data warehouse, from the

online store to all our fundamental operating systems – being replaced over a

period of three to four years.

IA: How did you work out the systems and business change that you wanted

to achieve?

MM: We defined the major high level business processes in the company –

the top 20 processes. Then we asked, of those really top level processes,

where do we want to be leading edge, where do we want to be competitive

and where are we happy to be just run-of-the-mill? We decided that we

wanted to be way ahead of the field in the capabilities that give us customer

intimacy. Whereas, for example, in accounting, we wanted to be reasonably

boring.

That drove the product selection and our appetite for risk in various areas – if

we wanted to be really leading edge in an area, we had to be prepared to

take more risk. If we wanted to be very boring, then we chose a package that

was really main-stream. Oracle Financials is the best example. We went with

Oracle because it’s dependable, boring and reliable, and that’s fine.

IA: So what kind of change programme did you devise?

MM: Some of the things we did first were reasonably standalone. We

implemented the customer data warehouse, for example, and then the new

online store.

One of the other things we did during the first year was move everybody to

the new head office building. That involved nearly 3,000 people moving from

nine buildings south of the river to one building in Holborn over the period of

three weeks. At the same time, we migrated everybody from green screen

email and very old versions of Microsoft Office.

Then we started to move into some of the most complex areas, things like

refreshing our point of sale (POS) systems. We had 13 different point-of-sale

systems. If we tried to make a change, we had to do it 13 times.

The mechanics of rolling out the new POS system meant an implementation

in 450 stores, which have anything up to 55 lanes each and, at the same time

we were rolling out the POS system, we were implementing the Siebel

customer information system and replacing all the PCs.

We are only now moving on to the systems that are the most integrated and

the most complex, because those have the longest planning time. For

example, we are about to replace some of our core systems – such as supply

chain forecasting, trading, planning and product maintenance.

Our new portfolio of systems is based on a standard architecture: Oracle

database and Sun Solaris Unix. That’s our core platform across the estate,

with the obvious exception of Microsoft Windows on the desktop.

Our application set is based around two or three major planks. The Retek

product set is being used for supply chain forecasting, trading, planning,

product maintenance and so on. And the Oracle product set is being used for

most of the back office, such as human resources and finance. Retalix is

being used for POS and we are also using some specialist software in certain

areas, such as Blue Martini for the ‘Sainsbury’s to You’ online store.

IA: How was the financing of the outsourcing deal worked out (Sainsbury’s

pays the same monthly amount over the life of the seven-year contract)?

MM: We wanted to invest a great deal of money over a short period of time

and the ‘special purpose vehicle’ financing deal we did enables us to do that.

I think the initial concept was first developed for the public finance initiative

(PFI), which is generally used for building bridges and hospitals. Typically in IT

investments, you invest all the money upfront, take the financial hit and then

the benefits come a long way down the line. Our deal with Accenture

spreads those costs out over the lifecycle of the deal. The contract was

devised by us and Accenture, and then put into place by Barclays Private

Equity and its Swan Infrastructure subsidiary.

IA: How adaptable is the contract to business change?

MM: There are specific provisions for dealing with that. The original deal

covered a certain number of stores and a certain level of business. But we

have some specific mechanics for dealing with growing the number of stores

and the volume of goods sold through them.

We knew that over the course of the deal we would be re-furbishing a huge

number of stores and substantially changing the physical supply chain

infrastructure, so when we wrote the contract we did so knowing that it

would have to deal with all this other business change as well.

IA: How do you manage the performance of such a large, all-encompassing

contract?

MM: It’s split between hard and soft measures. For example, the delivery

piece of the bonus is split between whether the project has delivered the

benefits that were in the original business cases. Obviously, a lot of that

depends on us doing not just the systems implementation, but on the

business change and the people change as well.

We also do user surveys to find out how people feel the project was

managed. Were they well enough informed about what was happening? Did

they have the right level of engagement? All those sorts of things.

Then, on service delivery, we measure the hard metrics. Did we meet the key

performance indicators in the year? We also do a service delivery survey,

comprising 20 questions on different aspects of the service.

Not only do we use those surveys to drive the balanced scorecard, but we

also try to find out if there are any common themes or emerging trends that

we are not picking up any other way. Is there an emerging problem that we

need to address?

IA: You say that there was no formal bidding process. How have you made

sure that Sainsbury’s has got value for money out of Accenture?

MM: To start with, we asked, “What are our IT costs and what rate are they

growing at? Where will they be at the end of the seven-year term?” If we

enter into the deal, what will the total cost over the period be and what will

the exit cost be? Then we asked, “Is that a good deal?”

It was done very much at a strategic level. And when you do the maths at

that level, it’s a spectacularly good deal.

IA: Overall, how would you advise others to approach such outsourcing

contracts?

MM: If you have got a strategic outsourcing arrangement, you need to keep

your eye on the end game. Obviously, you have to manage the detail, but

you have to remember what the goal is and why you did it. There is no point

falling out over a point of detail if it compromises on achieving the goal.

2. The Outsource Deal

2.1. Initial deal August 2000

Sainsbury’s to Outsource IT and Payroll Functions

August 22, 2000

J Sainsbury plc announced to its staff today that it is planning to outsource its

supermarket IT functions to Andersen Consulting (later called Accenture).

The two companies are currently finalising details of the arrangement which

are subject to final negotiation and approval by the Boards of both

companies at the end of September 2000.

The contract will encompass the designing, building, implementing and

running of all IT systems and networks for Sainsbury’s Supermarkets. Circa

800 employees will transfer to Andersen Consulting which will also take over

responsibility for, or manage, all Sainsbury’s Supermarket’s current IT

contracts with third party suppliers. Further details of the agreement will be

made available following final approval of the contract by the Sainsbury’s

Board.

Sir Peter Davis, Sainsbury’s group chief executive commented:

“I said at our preliminary results announcement in May that

we needed to improve our business efficiency radically and

with speed. The age and complexity of our current IT systems

are hampering our ability to perform and develop and our

required rate of change is made even more crucial with our

ambitions for e-commerce. We currently spend in excess of

£200 million a year on our supermarket IT systems and

operations. It is essential that we get better value for money

and through Andersen Consulting we have identified a

customer-centric platform which gets us where we need to be

and fast. It will drive a step-change in our IT capabilities and

help us deliver competitive advantage to our customers and

cost savings to our shareholders.”

John Adshead, Sainsbury’s group board director for IT added:

“Sainsbury’s has some excellent IT talent and expertise but our

current systems have evolved over many years and are costly

and complex to run. This move will create a fundamentally

more effective partnership between IT and our business and

give colleagues the opportunity to work with state-of-the-art

technology in a company which has IT as its core

competence.”

Bob Willett, global managing partner retail, Andersen Consulting, said:

“Our goal is to enable Sainsbury’s to achieve a quantum leap

in IT capability to support its business strategies. As the

Sainsbury’s board concentrates on rebuilding the strength of

the brand, Andersen Consulting will ensure it has the

necessary systems and processes in place.”

Sainsbury’s to Outsource Payroll functions

Sainsbury’s is also completing discussions with Rebus Human Resource to

outsource its current payroll operation for Sainsbury’s Supermarkets, Group

departments and its pensioners. Circa 45 employees will transfer to the

specialist payroll provider later in the year.

2.2. Announcement of Contract

LONDON, December 8, 2000 — J Sainsbury plc and Accenture announced the

recent signing of a seven-year contract that calls for the leading global

management and technology consultancy to manage the U.K. supermarket’s

information technology (IT) infrastructure. The agreement aims to radically

improve Sainsbury’s business efficiency and effectiveness by modernising its

IT systems, thereby achieving significant cost savings.

Under the agreement, which became effective November 12, 2000,

Accenture will take responsibility for all aspects of Sainsbury’s IT services,

including operating existing systems and networks, developing and installing

new systems and managing third-party contracts. Additionally, the

arrangement includes a transfer of approximately 800 Sainsbury IT

employees to Accenture. Sainsbury originally announced its decision to team

with Accenture and negotiate a final contract on August 22, 2000.

“Driving change in our IT capabilities is a fundamental part of

our business transformation plans,” said Peter Davis,

Sainsbury’s group chief executive “Many of the changes we

need to make are IT-dependent, and Accenture’s excellent IT

skills and retail industry experience will help us achieve real

competitive advantage and efficiencies quickly and cost-

effectively.”

Sainsbury currently spends in excess of £200 million a year on it