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Toyota Corolla and Toyota Tacoma. Moreover, despite the announcement of its
impending closing, the plant is still running at full capacity today, producing new
Corollas and Tacomas at the rate of one every 54 seconds.
The decision to form NUMMI came about 25 years ago when Japanese automakers
wanted to expand into the U.S. market, and U.S. automakers wanted to learn new
production techniques. Toyota believed that its agreement with General Motors could
help it achieve several goals. The company wanted to learn how to do business in the
United States, how to manage unions, and how to deal with U.S. workers. General
Motors believed that collaboration with Toyota could help the company learn the more
efficient Japanese production techniques and implement a just-in-time delivery system.
According to Robert Cole of the University of California at Berkeley, Toyota more or
less accomplished its goals, but General Motors was less successful at achieving its
objectives. Cole claims that for at least a decade, managers at General Motors resisted
input from Toyota, and so missed out on opportunities to improve.
Today, workers at the plant, many of whom have worked there for 10 or 20 years, are
uncertain about their futures. NUMMI is California’s only auto assembly plant, and there
are few other opportunities available in the state. California was among the most heavily
affected areas in the country during the recent global recession, and the closing of the
plant is yet another blow to the state. In addition, the companies that have supplied the
plant may be forced to layoff an additional 40,000 people, making the business
environment in the area even worse. NUMMI workers, who average about $28 per hour,
are organizing protests against the plant closing, hoping to keep it open. However, their
efforts are likely to do little. General Motors has already pulled out of the joint venture
as part of its reorganization after its bankruptcy, and Toyota believes that it can produce
its vehicles more efficiently at its newer plant in San Antonio, Texas. Still, according to
Cole, the joint venture should be viewed as a success story. Thanks to the collaboration,
Toyota recognized the value that U.S. workers had to offer, and General Motors learned
to think of productivity and efficiency in a new way.
Discussion Questions:
1. What is a joint venture? What prompted the decision to form NUMMI? How did the
joint venture benefit Toyota? What did the arrangement mean to General Motors?
2. Reflect on the success of NUMMI. Did both partners benefit equally from the joint
venture? Why or why not?
3. Why is the NUMMI venture ending? What does this imply about the nature of the
auto industry, and indeed the global economy?
4. What does the closure of the NUMMI plant mean to the Freemont area? Reflect on the
negative effects to the host country of foreign direct investment. In your opinion, would
the plant have a better chance of remaining open if it involved another company from the
U.S. rather than a company from Japan?
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INTEGRATING VIDEOS
There are also several longer video clips that can be integrated with the material
presented in this chapter. In particular, you might consider the following from
International Business DVD Volume 6:
Title: UK Company Expands to Ukraine for Farming
Learning Objectives
The purpose of this video is to help you:
❖ Explore the ethics involved in foreign ownership of a country’s fundamental assets
like farmland.
❖ Discuss whether investments in land are a form of neocolonialism.
❖ Define foreign direct investment and identify factors that make a country attractive to
foreign investors.
❖ Consider the impact of foreign companies on the host country.
Key Words
❖ Foreign direct investment
❖ Impact of the multinational company on the host country
❖ Ethics and social responsibility
❖ Globalization
❖ Global competition and strategy
❖ Political economy
❖ Neocolonialism
Synopsis
Until a couple of years ago, swaths of land in Ukraine that had been previously used for
agriculture stood untouched and filled with weeds and grass. Today, the fields are busy
with British combine harvesters bringing in a successful wheat crop. The fields are part
of huge tracts of land about the size of England that have been unused for the fifteen
years or so since the collapse of the Soviet farming system. As evidenced by the crops
that are currently being harvested, the fields are fertile, but were simply uncultivated.
Large companies and rich countries recognizing the food production that has been lost, as
well as the future potential of the land see Ukraine as an attractive location for
investment. British investors will grow some four to five tons of wheat on the fields,
double the national average of Ukraine. Now, Richard Sprinks, head of Landkom, the
owner of the combine harvesters, is looking at other investment possibilities in the
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country. Sprinks hopes to buy thousands of acres of unused farmland and convert them
to productive fields.
The investment by Landkom is part of a growing trend in the world. Countries and
companies, in response to dire predictions of global food shortages, are investing in land
with the hopes of growing crops. Britain has invested in Ukraine, China is buying up
land in Cambodia, and the Arab countries are investing in Africa. However, some are
questioning whether the investments are actually ethical. The British Food Security
advisor, for example, believes that the investments are unethical and in fact little different
from neocolonialism. He feels that land should be, and in fact, is, a country’s most
important fundamental asset. Investors though, disagree. They argue that their
investments in countries where much of the farming still involves horse-drawn plows, are
actually improving living standards and production efficiency and that everyone will
benefit. One farmer in Ukraine notes that he is not happy with the situation and would
rather own the fields instead. But the farmer is also resigned to the situation and the fact
that those with money have more control.
For now, the debate over whether foreign ownership of farmland is ethical will probably
continue. Regardless of the outcome of the discussion, the fields are once again
productive and more much-needed food is being produced. What is not clear though is
whether handing over control of the land to foreign companies was really the best way to
achieve this outcome.
Discussion Questions
1. Discuss the issues involved when countries and companies buy farmland in other
countries. Is the practice ethical? Why or why not? Are investors from rich countries
exploiting the assets of developing countries? Do the investors have a moral obligation
to give back to the countries where they have invested?
2. What is foreign direct investment? Using the information provided in the video,
provide an example of foreign direct investment. What factors make countries like
Ukraine attractive to foreign investors?
3. Consider the trend of investing in foreign farm land using different political ideologies.
How would those taking a radical perspective view the trend? What arguments would
those taking a free market approach make?
4. Reflect on the costs and benefits of foreign direct investment. How is Ukraine
benefiting from investments like the one shown in the video? What adverse effects from
the investment do you see? What does your response suggest for other countries such as
Cambodia that have been attracting similar investments?
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INCORPORATING globalEDGE™ EXERCISES
Use the globalEDGE™ site {http://globalEDGE.msu.edu/} to complete the following
exercises:
Exercise 1
A vital element in a successful international market entry strategy is an appropriate fit of
skills and capabilities between partners. As such, the Entrepreneur magazine annually
publishes a ranking of the “Top Global Franchises”. Provide a list of the top 10
companies that pursue franchising as a mode of international expansion. Study one of
these companies in detail and provide a description of its business model, its international
expansion pattern, desirable qualifications in possible franchisees, and the support and
training typically provided by the franchisor. Are there areas where improvement can be
made for the company to maintain competitiveness? Provide sufficient justification for
your position.
Exercise 2
The U.S. Commercial Service prepares reports known as the “Country Commercial
Guide” for countries of interest to U.S. investors. Utilize the Country Commercial Guide
for Russia to gather information on this country’s energy and mining industry.
Considering that your company has plans to enter Russia in the foreseeable future, select
the most appropriate entry method. Be sure to support your decision with the information
collected.
Answers to the Exercises
Exercise 1
The annual ranking of the top 200 global franchisers can be found by searching the term
“entrepreneur” at http://globaledge.msu.edu/ResourceDesk/. This resource is named
Entrepreneur Magazine: Top Global Franchises and is found under the globalEDGE
Exercise 2
The Country Commercial Guides can be accessed by searching for the term “country
commercial guide” at http://globaledge.msu.edu/ResourceDesk/. The link is located
under the globalEDGE category “Research: Multi–Country”. A direct link to the Country
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End of Part Case Notes
Part Five:
Coca-Cola
1. Why do you think that Roberto Goizueta switched from a strategy that emphasized
localization towards one that emphasized global standardization? What were the benefits
of such a strategy?
Answer: Goizueta believed that the main difference between the U.S. market and foreign
markets was the level of penetration in the foreign markets. Goizueta felt that the same
2. What were the limitations of Goizueta’s strategy that persuaded his successor, Daft, to
shift away from it? What was Daft trying to achieve? Datf’s strategy also did not
produce the desired results. Why do you think this was the case?
Answer: Most students will probably agree that it was the emergence of smaller, more
nimble competitors that forced Daft to change Coca Cola’s course. The smaller
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3. How would you characterize the strategy now being pursued by Coke? What is the
enterprise trying to do? How is this different from the strategies of both Goizueta and
Daft? What are the benefits? What are the potential costs and risks?
Answer: Today, Coca Cola has taken a more transnational approach to its strategy. The
new strategy allows the firm to vary pricing, product offerings, and marketing messages
4. What does the evolution of Coke’s strategy tell you about the convergence of
consumer tastes and preferences in today’s global economy?
Answer: Many students will probably agree that Coca Cola’s experience confirms what
many marketing experts suggest – that while there is a convergence of tastes and
Diebold
1. Prior to 1997, Diebold manufactured its ATM machines in the United States and sold
them internationally via distribution agreements, first with Philips NV and then with
IBM. Why do you think Diebold chose this mode of expanding internationally? What
were the advantages and disadvantages of this arrangement?
Answer: Prior to 1997, Diebold’s main focus was on its domestic market. The company
had very little international experience. By linking up with Philips NV and later IBM,
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2. What do you think prompted Diebold to alter its international expansion strategy in
1997 and start setting up wholly owned subsidiaries in most markets? Why do you think
the company favored acquisition as an entry mode?
Answer: By 1997, international sales comprised more than 20 percent of Diebold’s
overall sales. However, the company felt that there was still room to grow and that its
partner was underperforming. Consequently, Diebold bought IBM’s share of the venture
3. Diebold entered China via a joint venture, as opposed to a wholly owned subsidiary.
Why do you think it did this?
Answer: When Diebold embarked on its new strategy in the late 1990s it was focused on
pursuing markets where the emerging middle class was just beginning to create a new
4. Is Diebold pursuing a global standardization strategy or a localization strategy? Do
you think this choice of strategy has impacted upon its choice of entry mode? How?
Answer: Most students will probably agree that Diebold is pursuing a localization
strategy. The company has determined that people use ATMs differently across markets.
JCB in India
1. What was the strategic rationale underlying JCB’s entry into India in 1979, and China
in 2005? Given that capital to fund expansion is limited, does it make more sense for
JCB to expand its presence in these markets, as opposed to more developed markets, such
as those of Western Europe?
Answer: When JCB entered the Indian market in 1979, the company felt the market was
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2. Why do you think JCB chose to enter India via a joint venture, as opposed to some
other entry mode?
Answer 2: JCB entered the Indian market in 1979 via a joint venture with Escorts. The
decision to enter via a joint venture arrangement was prompted by high tariff barriers that
3. Why did JCB not simply license its technology to Escorts?
Answer: JCB’s technology provided the company with a key competitive advantage.
JCB avoided licensing arrangements because it felt that such arrangements did not give it
4. What were the potential disadvantages of JCB’s joint venture with Escorts?
Answer 4: JCB was concerned that the joint venture limited its ability to expand. The
5. What were the benefits of gaining full control of the Indian joint venture in 2002? Can
you think of any drawbacks?
Answer: While the joint venture between JCB and Escorts was successful, JCB chose to
buy out its partner. JCB took advantage of new government regulations to initially buy a
majority position in the venture in 1999, and later in 2002, buy it outright. Most students
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IKEA
1. By the early 1970s IKEA had established itself as the largest furniture retailer in
Sweden. What was the source of its competitive advantage at that time?
Answer: Many students will probably attribute IKEA’s success in the 1970s to
innovation. The company continually looked for new and better ways to do everything
from product design to shipping. The company’s stylish, yet low priced designs were a
2. Why do you think IKEA’s expansion into Europe went so well? Why did the company
subsequently stumble in North America? What lessons did IKEA learn from this
experience? How is the company now applying these lessons?
Answer: IKEA’s experiences in the United States were in stark contrast to its experiences
in Europe. The company met with great success in Europe, where its concept of
inexpensive, quality furniture with clean design lines was well received. Many students
3. How would you characterize IKEA’s strategy prior to its missteps in North America?
How would you characterize its strategy today?
Answer: Most students will probably agree that prior to its missteps in North America,
IKEA largely followed a global standardization strategy whereby it sold the same product
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4. What is IKEA’s strategy towards its suppliers? How important is this strategy to
IKEA’s success?
Answer: IKEA’s suppliers are central to the company’s success. In 2008, the company
had 1,380 suppliers located in 54 countries, and relied on external suppliers for 90
percent of its products. IKEA works closely with suppliers to find the best possible
5. What is the source of IKEA’s success today? Can you see any weaknesses in the
company? What might it do to correct these?
Answer: Many students will probably attribute IKEA’s continued success to it ability to
remain on the leading edge of the industry. The company is forward thinking and willing
to make bold decisions. Some students may note that the fact that the company is