IB Business Management SL 1.6 Multinational Companies Mncs Topic Practice

FrioAire Appliances (FA)


FrioAire Appliances (FA) manufactures medium-priced and medium-quality refrigerators. It is a multinational public limited company. Its factory is located in a less economically developed country that has high unemployment, a tradition of autocratic leadership and labour costs lower than FA's home country. The factory is profitable, and FA pays consistently good dividends. Market growth for medium-priced and medium-quality refrigerators is limited.
As part of a strategic objective to increase productivity and to enter a fast-growing market for high-priced and high-quality refrigerators, F A is considering building a new factory in and relocating production to Germany. This would require closing the factory in the less economically developed country. The new factory will:
- use innovative technologies, including advanced robotics and 3D processes
- require fewer employees, but those it does require will need to have better skills and qualifications.
Germany has a highly skilled, qualified and productive workforce. The new factory would allow FA to reposition its products. However, FA would need to raise significant finance to build and equip the new factory.
FA's leadership style at the factory in the less economically developed country is autocratic. Members of FA's board wonder whether this style would be suitable for the new factory in Germany, where workers have more bargaining power because of their high skill level and the labour-friendly cultural traditions. In Germany, FA would have to follow more regulations regarding the environment, health and safety, and employee rights.
FA workers in the less economically developed country are very loyal to F A, which has continued operation through a civil war at significant cost to itself (for security). If FA were to close in the less economically developed country, the workers would not find such good jobs.

Explain one positive and one negative impact of FA on the developing country.

Khumalo Pottery (KP)
Lungile Khumalo owns a small company called Khumalo Pottery (KP) in Johannesburg, South Africa. K P manufactures plates and bowls that are sold to small shops. K P has a unique selling point (USP) based upon traditional African designs and patterns decorating the pottery. K P does not pay its workers high wages and has never made anyone redundant, even during difficult economic times. Lungile always repeated to his workers that beauty was more important than quantity. Workers at K P could take time to produce beautiful pottery. They also developed great pride in the company and in their work.
Across the Atlantic, in the United States (US), pottery with African designs was becoming increasingly popular. As a result, several large American pottery manufacturers, operating on a very large scale, began to mass produce pottery with African-looking patterns. Thanks to their economies of scale, these American manufacturers sold their products at a very low price.
In 2013, one large American company opened a highly automated factory in Johannesburg. The aim was to produce and sell African-looking pottery to large retailers across sub-Saharan Africa. If successful, the American company would employ up to 150 South Africans. These jobs would not require much creativity: the pottery would not be hand-made, but the company would offer good wages with fringe payments (benefits).
The American company used penetration pricing in South Africa, and large retailers eagerly stocked their shelves with the pottery. K P 's sales started to decline almost immediately, as the small shops selling K P 's pottery were losing customers to the large retailers with lower prices.

Evaluate the impact on South Africa of the American company opening a factory in Johannesburg.