marcus m larsen - case introductions (3).pdf

8/9/2019 Marcus M Larsen - case introductions (3).pdf

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CARLSBERG IN EMERGING MARKETS

A breeze of optimism blew through the office of Carlsberg A/Ss CEO, Jrgen Buhl Rasmussen. After

finally gaining 100 per cent control over the giant Russian brewery Baltic Beverages Holding (BBH), and

with the investments in Western China beginning to bear fruit, the newly appointed CEO was confident

that the Danish brewing companys intensified focus on emerging markets would pay off. The companywas counting on tapping the massive potential in emerging markets in order to achieve a much-needed

reduction in its dependency on the maturing and stagnating Western European beer markets, which

accounted for a full 61 per cent of the companys revenue in 2007.

Indeed, Carlsbergs emerging market efforts had come a long way. In the Russian market, which was

considered to be one of the fastest-growing beer markets in the world, Carlsberg enjoyed market-leader

status through its ownership of BBH. In that market, it had a sales volume of approximately 23 million

hectoliters of beer in 2007 and revenue of kr 9 billion (US$1.8 billion). As for the highly promising

Chinese market, which was regarded as the worlds largest beer market in terms of population and size,

the Danish company had achieved a 55 per cent market share in the western parts of the country, and itoperated 20 brewery plants in China with close to 5,000 employees. In fact, as Carlsberg recognized that

the European markets would eventually reach a point of saturation, the aim of the Chinese investments

was to create a platform for future growth and revenue.

The outlook for Carlsberg had not always been as bright as it appeared by 2008. Carlsbergs emerging

market strategy had taken a long and winding road. For ins tance, Carlsbergs acquisition of the BBH

shares was the result of a troubled and expensive partnership with Norwegian Orkla ASA. In addition,

before Carlsberg had become successful in the western provinces of China, the company had spent

plenty of valuable time and resources trying to enter the rich provinces of southeastern China, a

strategy that had failed. Furthermore, in the early 2000s, Carlsberg was on the brink of being reduced to

a secondary player in the global beer market as the consolidation of the industry proceeded,

Carlsberg A/S became an obvious takeover target and was also at risk of being cornered as a small

regional player. Nonetheless, in 2008 as the first decade of the millennium neared an end, Carlsberg was

the fifth-largest brewery in the world in terms of volume produced. Much of this reversal of fortune

could be attributed to the companys emerging market focus.

Despite Buhl Rasmussens optimism about the future, the real question was how Carlsberg A/S could

successfully continue to capitalize on its growing engagement in emerging markets. We dont know

how large the Chinese market will be in five years, and I dont know if China can become a new BBH,

the CEO explained, but it is definitely not impossible, as the marketis enormous.1

It was no surprise

that competition was becoming increasingly fierce in this booming emerging market, and history had

clearly proven that doing business successfully in this market required unconventional approaches.

1Business.dk, August 18, 2008.


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LEGO GROUP: AN OUTSOURCING JOURNEY

The last five years rather adventurous journey had taught the fifth-largest toy-maker in the world the

LEGO Group the importance of managing the global supply chain effectively. In order to survive the

largest internal financial crisis in the companys roughly 70 years of existence, resulting in a deficit of

DKK1.8 billion in 2004, the management had, among many initiatives, decided to offshore and outsourcea major chunk of LEGOs production to Flextronics, a large Singaporean electronics manufacturing

services (EMS) provider. In this pursuit of rapid cost-cutting sourcing advantages, the LEGO Group

planned to license out as much as 80 per cent of its production, besides closing down major parts of the

production in high-cost countries. Confident with the prospects of the new partnership, the company

signed a long-term contract with Flextronics. It has been important for us to find the right partner,

argued Niels Duedahl, a LEGO vice-president, when announcing the outsourcing collaboration, and

Flextronics is a very professional player in the market with industry-leading plastics capabilities, the right

capacity and resources in terms of molding, assembly, packaging and distribution. We know this from

looking at the work Flextronics does for other global companies.2

This decision would eventually prove to have been too hasty, however. Merely three years after the

contracts were signed, LEGO management announced that it would phase out the entire sourcing

collaboration with Flextronics. In July 2008, the executive vice-president for the global supply chain, Iqbal

Padda, proclaimed in an official press release that we have had an intensive and very valuable

cooperation with Flextronics on the relocation of major parts of our production. As expected this

transition has been complicated, but throughout the process we have maintained our high quality level.

Jointly we have now come to the conclusion that it is more optimal for the LEGO Group to manage the

global manufacturing set up ourselves. With this decision the LEGO supply chain will be developed faster

through going for the best, leanest and highest quality solution at all times.3

This sudden change in its sourcing strategy posed LEGO management with a number of caveats. Despite

the bright forecasts, the collaboration did not fulfill the initial expectations, and the company needed to

understand why this had happened. Secondly, what could LEGO management have done differently?

Arguably, with little prior experience in outsourcing this large amount of production, the LEGO Group had

had a limited knowledge base to draw on to manage a collaboration like this. Yet, with Flextronicss size

and experience with original equipment manufacturers (OEMs), this, in theory, should not have been a

problem. Lastly, one could ponder whether the unsuccessful collaboration with Flextronics had been a

necessary evil for the LEGO Group. LEGO managements ability to handle its global production network

after the Flextronics collaboration had surely changed, and aspects like standardization and

documentation had to a much larger extent become valued.

2LEGO press release, December 21, 2005.3LEGO press release, June 1, 2008.


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BESTSELLERFACING A NEW COMPETITIVE LANDSCAPE IN

CHINA4

In the fall of 1996, Bestseller became one of the first international fashion companies to enter the

Chinese retail market.5Earlier that year, two good friends, Allan Warburg and Dan Friis, had made contact

with the CEO of Bestseller A/S, Troels Holch Povlsen, regarding the prospect of selling Bestseller brands in

China, where they felt there were many business opportunities.6Holch Povlsen found himself believing in

the two entrepreneurs and was convinced by their enthusiasm for the Chinese market. At the same time,

he was in need of some help with Bestsellers purchasing offices in Hong Kong and Beijing.7 The plans

materialized in the joint formation of Bestseller Fashion Group China Ltd. (Bestseller China), and the first

outlet for the ONLY brand was quickly established in a department store in Beijing.8

Warburg and Friis soon proved that they had been right about China. Within the first year, Bestseller

China opened 24 stores in nine different cities, and it introduced two other brands from Bestseller A/Ss

portfolio, Jack & Jones and Vero Moda, at the beginning of the new millennium.9A little more than a

decade after the first store opened, Bestseller China had almost 2,000 stores and accounted for morethan one-third of the total turnover of Bestseller A/S.10 The secret to Bestseller Chinas extraordinary

success was its ability to sell price-competitive European designs with a Chinese touch, which was

achieved by locating all production in China and modifying Bestseller A/Ss designs to suit the size and

tastes of Chinese middle-class consumers.11

With a ten-year head start over potential competitors, Bestseller China had by the end of 2007 managed

to establish a strong presence in China. However, the high economic growth and growing middle class

were making the Chinese market highly attractive for other companies a fact that Troels Holch

Povlsen was very aware of: There is a growing and reasonable market in China for many different

consumer goods, but that also means that the competition is increasing,he said.

12

However, althoughglobal giants such as Zara and H&M were devoting big chunks of their budgets to entering China and

capturing market share, these aggressive new entrants were not Holch Povlsens biggest concern.13As

he saw it, The competitionthat we see is not coming from American or European players, but from

local companies and in the future, we will not only see Chinese goods, but also Chinese companies on

an international level that is certain.14

4 This case has been written on the basis of published sources only. Consequently, the interpretation and perspectives

presented in this case are not necessarily those of Bestseller A/S or any of its employees.5Dansk modetj bestseller i Kina, Brsen, 1998.6Kinesere gr i dansk tj, Jyllands-Posten, 2004.7 J. Brink, M. Stiller and J. Trnblom, China success a gateway to global success? A case study of how to create aforeign home market, Stockholm University, 2005, p. 46.8Bestseller bner egne butikker i Kina, Brsen, 1997.9Dansk modetj bestseller i Kina, Brsen, 1998; Kinesere gr i dansk tj, Jyllands-Posten, 2004.10Nyt rekord-resultat fra Bestseller, Brsen, 2005; Kinesiske forbrugereer med fremme, Berlingske Tidende, 2007.11Kinesere gr i dansk tj, Jyllands-Posten, 2004.12Kinesiske forbrugere er med fremme, Berlingske Tidende, 2007.13H&M vil slge tj til kineserne, Brsen, 2006; Bestseller rival er ren pengemaskine, Brsen, 2007.14Kinesiske forbrugere er med fremme, Berlingske Tidende, 2007.


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NOKIA: FROM IN-HOUSE TO JOINT-R&D

For the management of Nokia Denmark, the question of defining the future strategic directions for its

product development activities was a vital issue that boiled down to some key concerns. Nokia Denmark

was a subsidiary of the worlds largest telephone manufacturer, the Nokia Corporation, and was one of

the largest of Nokias many product development units dispersed all around the world. The Danish sitedeveloped somewhere between six and ten mobile phones per year, depending on instructions from the

Nokia headquarters located outside the Finnish capital of Helsinki.

In 2007, Nokia Denmark decided to deepen its relationship with one of its current suppliers, Taiwanese-

based Foxconnthe worlds largest electronics component manufacturer with most of its facilities in

mainland Chinain a joint R&D (JRD) setup in which Foxconn was given the responsibility of developing

and testing selected mobile phones. Development of more complex mobile phones with new and

sophisticated technologies was still retained in-house in Denmark, but the more standardized and less

complex products with known techniques were outsourced to Foxconn. However, while the decision to

approach Foxconn was originally motivated by a need to release pressure on in-house productdevelopment capacity, by 2010 the in-house/JRD organization had become a central facet of Nokia

Denmarks product development organization.

Recent developments in the Nokia environment had spurred lively debates as to how the company

should move forward. Indeed, as newly appointed CEO Stephen Elop expressed it: In the five weeks

since joining Nokia, I have found a company with many great strengths and a history of achievements

that are second to none in the industry. And yet our company faces a remarkably disruptive time in the

industry, with recent results demonstrating that we must reassess our role in and our approach to this

industry. Some of our most recent product launches illustrate that we have the talent, the capacity to

innovate and the resources necessary to lead through this period of disruption. We will make both the

strategic and operational improvements necessary to ensure that we continue to delight our customers

and deliver superior financial results to our shareholders.15Changes to the company, its strategy and

organization were therefore inevitable, although it was impossible at this point in time to predict what

precisely would happen.

Still, the Danish management knew that the time would come when they would have to present, justify

and defend their strategy for how the product development division of Nokia Denmark should evolve.

Accordingly, three different strategic options had been outlined:

1. Nokia Denmark could scale up the JRD with Foxconn to eventually suspend more of the in-house

product development. While this seemed to be a highly drastic move, it would allow NokiaDenmark to focus exclusively on more creative and value-adding activities such as the

architecture and concept mapping of new mobile phones.

2. Conversely, Nokia Denmark could phase out the JRD with Foxconn and pursue fully in-house

product development. This would require Nokia Denmark to employ more resources on simple

15Nokia interim report, 2010, Q3.


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standardized projects, but it would also save the costs of controlling and coordinating the

interfaces and interdependencies between the two companies.

3. The last option would entail a continuation of the parallel organizational structure that had

emerged in recent years. This could give Nokia Denmark the best of both worlds. However,

experience had shown that the balancing act between in-house and JRD product development

was far from straightforward.

Obviously, there were no easy answers to how Nokia Denmark should position its product development

in the future. Each of the strategic alternatives had its own benefits and disadvantages, and these

needed to be carefully identified, assessed and weighed against each other. Moreover, what would be

the consequences of pursuing one strategy over another? Cautious prioritization would determine

which qualified choice had to be made. However, given the broad array of stakeholders and

considerations that had to be included in the final decision, the Danish management knew perfectly well

that the task in front of them was indeed not an easy one.


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COLOPLAST: TEN YEARS OF GLOBAL OPERATIONS

On a flight between the two Coloplast production sites in Hungary, Allan Rasmussen, senior vice

president at Coloplast Global Operations, thought about how to prepare his speech for the forthcoming

Capital Market Day. By 2011, Coloplast the worlds leading supplier of intimate healthcare product

and services was standing stronger than ever before, with growth in profits averaging 23 per centover the last five years.

The seeds of this lucrative position could to a large extent be attributed Global Operations the

Coloplast division responsible for manufacturing and the supply chain and its success in establishing a

global footprint. Beginning in 2001, Coloplast began relocating major parts of the manufacturing away

from Denmark to Tatabanya in Hungary. A few years later, more production activities were relocated to

two new major production facilities in Zhuhai, China and Nyirbator, Hungary. Paralleled by a number of

other initiatives, Coloplast managed in the end to establish an international manufacturing footprint

consisting of eight production sites in five different countries, where 60 per cent of the production was

conducted in Hungary, 25 per cent in China, 5 per cent in the United States and France, and theremaining 10 per cent in Denmark.

Despite Coloplasts recent success, however, Rasmussen was well aware that the situation in Global

Operations had not always been bright. Indeed, the past ten years rather bumpy journey had taught

Coloplast the process of transforming a domestically centered Danish manufacturing company to

become a truly multinational corporation with a global supply chain was not a straightforward task. A

number of problems and challenges such as empowering the new subsidiaries, adjusting the

organizational requirements and identifying the detrimental organizational complexities stemming from

the international interfaces forced Coloplast to take stock of Global Operations. It was time for Allan

Rasmussen and the Coloplast executive management to understand what the last ten years had taught

them. Could Coloplast have prepared its manufacturing internationalization process in a better way?

The relocation to low-cost countries had to a large extent been carried out as a trial-and-error process

without the guidance of an overarching corporate strategy. A relevant question therefore related to

how Coloplast could formulate and successfully implement strategies for international manufacturing.

How could Coloplast better balance its attention between domestic and foreign activities? While the

foreign activities were largely performing as they should, Coloplast had noted that failure to adjust the

domestic part of the organization alongside Global Operations global mandate was the root cause

behind an underperforming organization.

Rasmussen had two weeks to prepare his speech for the Capital Market Day, where key shareholders

would gather to learn about Coloplasts situation and future strategies.The strong performance growth

over the last couple of years was a strong indication that Coloplast, and in particular, Global Operations,

was on the right track. Rasmussen`s main task was to convince the audience Coloplast had learned

valuable lessons over the last ten years about the establishment of a global manufacturing footprint

that would support and reinforce future prospects. How, and with what focus, this should be done,

however, were questions he did not yet have answers to.

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