IB Business Management HL 1.6 Multinational companies (MNCs) Question Bank

4. "Think locally, grow globally"
To avoid negatively affecting sales, McDonald's ${ }^{\circledR}$ senior managers in the United States (US) headquarters realized that they should not apply identical American standards worldwide. McDonald's ${ }^{\circledR}$ must now think locally to grow globally.
British-born Steve Easterbrook, head of McDonald's ${ }^{\circledR}$ in the United Kingdom (UK), understood the need for strategic change and prepared tactics with two objectives:
- to attract new and different customers
- to enhance the good value of products to appeal to customers during economic recession.
One of the first tactics in the UK was the introduction of "Little Tasters ${ }^{\text {® }}$ ", which offered new products, in small portions, at low prices. Steve understood that young mothers, when taking their children to McDonald's ${ }^{\text {® }}$, would not buy meals for themselves because they felt the portions were too large. Other tactical changes, in response to customer demand, included the introduction of more chicken-based products for health-conscious customers. Moreover, an improved breakfast menu and better quality coffee attracted more price-conscious people on their way to work.
These adaptations to local conditions proved successful in the UK and beyond. McDonald's ${ }^{\circledR}$ UK had 13 million more customers in 2010 compared to 2009, resulting in an increase in market share (during the economic recession). In other host countries McDonald's ${ }^{\circledR}$ also successfully implemented its "think locally, grow globally" strategy. For example, it successfully launched products made from local produce and suited to local tastes such as the "Maharaja Mac ${ }^{\mathrm{TM}}$ " in India, the "McLobster ${ }^{\text {® }}$ " in Canada and the "Ebi Filet-O" (a shrimp burger) in Japan.
At the same time McDonald's ${ }^{\text {® }}$ launched a "global uniform initiative" to redecorate its restaurants with uniform appearance. McDonald's ${ }^{\text {® }}$ still tries to maintain the global recognition and the quality of its global brand. Local construction material and local labour are used, as well as different colours, comfortable armchairs and free Internet access. Other multinational food and drink companies, such as $K F C^{\text {® }}$ and Starbucks ${ }^{\text {® }}$, are also using a similar strategy to the "think locally, grow globally" strategy used by McDonald's ${ }^{\mathbb{®}}$.

5. 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.

5. Taxi-M (TM)
Taxi-M (TM) operates 2500 taxis in a developing country. All drivers are full-time employees and have a professional taxi license. Although not compulsory, TM regularly conducts safety inspections of the taxis. Though safe, most of TM's taxis are old and TM charges high prices. Many customers complain.
However, a multinational company, R E, with offices around the world, has started to offer a mobile application (app) called Best-Taxi (BT). Using their mobile phones, passengers can use B T to book and pay for a car journey. Any car owner can offer journeys through BT. For security reasons, the B T app registers passengers' and drivers' personal details.
TM's sales are falling and profits are down. A number of TM's drivers are becoming demotivated. Facing lower incomes, poor management and rumours of redundancies, many loyal drivers have left to offer taxi services using their own cars and the B T app. Some of these drivers are earning considerably higher wages than before.
The situation for TM appeared critical. However, local media have reported a higher rate of road accidents by B T drivers than licensed taxi drivers. Several of its drivers have assaulted and robbed customers. In response, TM's management decided to downsize and differentiate itself from B T by positioning its service as a high-price, high-quality traditional taxi service. TM will:
- sell older cars and lease new luxury cars
- develop a unique selling point/proposition (USP) emphasizing comfort and safety.
Customers can book taxis by telephone and by stopping them in the street. TM's target market will be business people, higher income families and passengers concerned about safety.

5. Moving back to the US
Reducing costs has been a significant driving force in pushing multinational companies to offshore manufacturing. However, as emerging economies develop, labour costs are rising.
Between 2005 and 2010, wages of factory workers in China rose by 69 %. An analyst for Boston Consulting Group said that "the cost advantages from offshoring are falling to such an extent that some American multinationals with manufacturing offshore are returning home to supply their American customers". By 2015, the cost advantage of offshoring manufacturing for the United States (US) market will disappear. The analyst has forecasted, based on the same time series technique as sales forecasting, that wages will continue to grow at around 17\% a year in China, but remain stable in the US.
Gary Pisano, of Harvard Business School, said that some American companies that had considered offshoring parts of their business are choosing to expand within the US. General Motors, for example, will invest US $ 2 billion to create 4000 jobs at 17 manufacturing plants in the US.
A growing number of multinational companies, especially from high-income countries, are starting to see the benefits of keeping their manufacturing "at home". For many producers, labour costs are a small proportion of the total cost. Also, long and complex supply chains have become unreliable due to changes in external factors such as the increase of oil prices, political instability and natural disasters such as earthquakes.
However, Gary Pisano also argues that:
- in some industries, such as consumer electronics, the US no longer has the necessary supply chain
- some multinational companies will continue to build most of their new factories in emerging economies, where the demand is growing fastest
- some of the new factories in the US have been financed by government subsidies, which will soon stop
- in India, despite rising wages, its innovative software development and call-centre offshoring industries are likely to retain its cost advantages because of increasing productivity.