German Companies example essay topic

Introduction: According to Robert Templer McDonald's opened its 25,000th branch recently! "Anthropologists Find McDonald's May Deserve More Respect in Asia", WSJ Interactive Edition). He also reported that the giant fast food firm began operation in its 117th country. With such international presence it is little wonder that Ronald and the rest of the McDonald's crew pose such a "ripe target" to foes of globalization. This case study explores two globalization issues that McDonald's success highlights-competition and culture.

Assignment: Based on the information in the Wall Street Journal Interactive Edition article cited below, class discussion, and other sources address the following questions in an essay. Be sure to provide references in a generally accepted format, and be sure to find outside sources (i. e., beyond material introduced through the course). Keep in mind that this assignment is worth 50 points. 1. From the point of view that McDonald's spreading throughout the world is an example of competition in action, discuss the competitive atmosphere that might attract McDonald's into a new area and how that competitive atmosphere might change after McDonald's arrives.

(Be sure to consider comparative advantage.) 2. Now assess the impact McDonald's has on local culture and the impact local culture has on McDonald's. Include an explanation of the role competition has in this cultural interplay. [NOTE: The competition and culture issues addressed in this case also exist in the more traditional concept of international trade when goods or services are produced in one country and sold in another. In both situations Adam Smith's phrase the "invisible hand" might come into play.] Wall Street Journal Reference: Templer, Robert. "Anthropologists Find McDonald's May Deserve More Respect in Asia".

Wall Street Journal Interactive Edition. September 10, 1999. (web) Other Globalization articles [The Wall Street Journal Interactive Edition] July 16, 1999 Business and Finance - Asia Indonesian Retail Group Gets Upset Over Influx of Big French Markets By JEREMY WAGSTAFF Staff Reporter of THE WALL STREET JOURNAL TWO RIVAL FRENCH hypermarket chains are aggressively expanding in Indonesia, despite the dire economy, and a local retailers group is crying foul. In the past nine months, Carrefour SA has opened one emporium in Jakarta and says it plans at least two more this year. Promotes SA already has two Continent stores here, one of which opened just this week. They sell everything from chilis to high-fidelity systems, dwarfing local rivals and drawing big crowds. Continent's flagship in the Kuningan business district is regularly packed.

Neither company will release figures, but both say they are happy with their performance so far. It's a bold move, coming so close on the heels of last year's violent looting sprees in Jakarta, which left many shops and malls smoldering. Indeed, the Carrefour store was partly looted in November, a month after it opened. The Indonesian Retailers' Association, Aprindo, says the giants represent unfair competition in a languishing market.

Its executive director, Kustarjono Prodjolalito, also claims they are winning customers by selling products below cost in some cases. He fears a price war that may crush smaller retailers. "It's going to put competition within a three- to five-kilometer radius out of business", says Mr. Kustarjono, adding, "It's unfair". CARREFOUR and Continent deny they sell below cost. "We don't know what they " re talking about", says Handi Lies of Carrefour.

But the government may be taking action anyway. The local media reported last week that city retail-trade officials plan to update regulations, "to maintain fair business practices among local businessmen". The officials didn't return calls seeking comment. At least one high-profile U.S. predecessor in the market had a rough time. The U.S. retail chain Wal-Mart Stores Inc. ended a franchise agreement in Indonesia last year, after less than two years, due to weak sales and a row with its local partner, a unit of the Lipp o Group, over royalty fees and capital. Other companies such as wholesaler Makro, operated through an advisory contract with local company PT Kara bha Ung gul by SHV Holdings NV of the Netherlands, have avoided head-on competition with city-center retailers by setting up operations on the edge of cities, rather than in the heart of them, like the hypermarkets have.

Both French companies say their Indonesia strategies were laid in the years before economic crisis hit in mid-1997. From 1992 to 1996, retail sales rose an average 20% a year, says Aprindo. Last year, however, sales fell somewhere between 20% and 30%, compared with the most recent pre crisis year, 1996. In addition, Indonesia's middle class -- the hypermarkets' target market -- has been hardest hit, according to World Bank figures. The November looting raised alarm bells at Carrefour and jeopardized its expansion plans, according to an executive close to the company. "The management was traumatized by the looting", says the executive.

Once committed to a city, however, there's an inexorable logic to expansion. The big stores produce economies of scale only after a company has opened four in one city, according to Johnny Widjaja, president commissioner of Carrefour's local partner, PT Tigaraksa S atria. AND NOT ALL local retailing organizations are unwelcoming. At a meeting of several associations this month to discuss the issue, the invitees fell short of agreeing with Aprindo to push for a government prohibition on more hypermarkets. "I'm happy, actually, because we " re a distributor and we need the business", says H.A. Parwennei, chairman of the Indonesian Supplier and Distributor Association. Syahrir Tanjung, who heads PD Pasar Jaya, a state company running the city's traditional markets, denies any serious effect on his thousands of stall-holders.

"The problem is how to make competition without killing each other", he says. Both companies have tried to keep a low profile, and in fact, their managers haven't joined Aprindo, says Mr. Kustarjono. The managers declined to comment for this article. Shifting consumer habits here aren't anything new, of course.

When supermarket chain PT Hero Supermarket opened its doors in Jakarta in the early 1970's, there was widespread fear other supermarkets and traditional markets would be goners, says Mr. Tanjung of PD Pasar Jaya. Not so. "They suffered a bit, but just created more competition", he says. Despite his hypermarket hostility, Aprindo's Mr. Kustarjono has passed onto his members several tricks he says he spotted on spying trips to Continent and Carrefour.

One of them: Shrink-wrap packs of two chicken drumsticks -- it's a convenient size for Indonesia's growing ranks of divorcees, he says. "We have to follow the changes", he says, adding, "We should learn how to be more efficient". -- Special correspondent Rin Hindryati contributed to this article URL for this Article: web Copyright (c) 2000 Dow Jones & Company, Inc. All Rights Reserved. Printing, distribution, and use of this material is governed by your Subscription Agreement and copyright laws. For information about subscribing, go to web [The Wall Street Journal Interactive Edition] July 28, 1999 International Commentary The Americanization Of European Business By Geoffrey Owen, a senior fellow at the Institute of Management, London School of Economics.

He was editor of the Financial Times from 1981 to 1990. The political and economic integration of Western Europe is often seen, especially in Britain, as leading inexorably to more regulation of business, higher social costs and more onerous labor laws -- all of which are likely to put European companies at a disadvantage vis-a-vis their American competitors. Yet a remarkable feature of the European corporate scene today is the extent to which American ideas and business practices are gaining ground. This is most clearly seen in the wave of restructuring that is altering the shape and ownership of several major industries. The current takeover battle in France between Total Fina and Elf Aquitaine, following closely on Olivetti's sensational victory in the battle for Telecom Italia, is the most recent example of the kind of activity that would have been virtually unthinkable 20 years ago. In many of these cases, the participants are being advised by American investment banks and American lawyers.

The restructuring process is driven by international competition and an increasingly demanding capital market. On both fronts, European integration is providing an additional spur. The arrival of the euro will tend to eliminate pricing differences between member countries, while making it easier for investors to treat Europe as a unified capital market. Steel making, for example, once the most nationalistic of industries, is beginning to acquire a global character as more companies seek to strengthen their market position through cross-border acquisitions and joint ventures. The proposed merger between British Steel and Hoogovens of the Netherlands is motivated partly by the quest for cost savings and partly by the need to offer a better service to customers, such as the car manufacturers, which are themselves operating on a European scale.

At the same time, the merging companies are under pressure to offer to their shareholders returns that at least match those available on comparable investments in the U.S. Thanks in large part to former prime minister Margaret Thatcher, Britain started down this path earlier than other European countries. The severe recession of the early 1980's, together with the pro-competitive policies pursued by successive Conservative governments, forced British companies to come to grips with their internal weaknesses, raise their performance levels closer to the best international standards and align their strategies to the needs of the world market. The rehabilitation of British Steel, once the most inefficient steelmaker in Europe, is rightly regarded as a triumph for Thatcherism, but similar, if less publicized, transformations took place in many other firms. The general trend then was toward specialization and internationalization -- focusing on businesses that could hold their own on the world stage, and getting out of those that could not. In some sectors, such as television sets and automobiles, gaps left by uncompetitive British firms were filled by foreign companies which built or acquired factories in Britain. Thatcherism was unique to Britain, a reflection of the dire state into which the country had fallen in the second half of the 1970's.

But similar forces have been at work in other parts of Europe, not least in Germany. During the 1960's and 1970's much of German industry was characterized by widely diversified companies that were more interested in top-line growth -- a continuing expansion of sales and employment -- than in bottom-line performance. For a mixture of reasons, including the need to satisfy their increasingly numerous non-German shareholders, several of these companies have now drastically revised their strategies. The most celebrated example is the conversion of Hoechst, one of the big three chemical companies, from a chemical conglomerate into a narrowly focused "life sciences" firm. This has involved a complex series of acquisitions and divestment's, culminating in the merger with Rhone-Poulenc of France to form Aventis, which will become one of the world's largest pharmaceutical manufacturers. The ultimate success of this operation remains uncertain, but what Hoechst has done illustrates the willingness of even the most securely established German firms to make a radical break with their past.

No less significant was last year's decision by Siemens, which was incurring heavy losses in semiconductors, to hive off this business into a separately quoted company. The management of Siemens had long argued that vertical integration -- making electronic components as well as finished equipment such as computers and telephone exchanges -- was an essential part of its strategy. What this meant in practice was that the loss-making semiconductor business was subsidized by the more profitable divisions, dragging down the performance of the group as a whole. This might have been acceptable when shareholders were passive and capital markets quiescent, but those days are over and Siemens has been forced to respond.

Hoechst, Siemens and a growing number of other German companies have embraced (with varying degrees of enthusiasm) the Anglo-American concept of shareholder value as the primary measure of corporate performance. One of the role models for Juergen Schrempp when he took over as chairman of Daimler-Benz in 1995 was Jack Welch of General Electric, which had consistently achieved a return on equity of around 20%. As a first step, Mr. Schrempp insisted that every business within Daimler-Benz must aim for a return on equity of at least 12%. The culture change which Mr. Schrempp engineered in Daimler-Benz helped to pave the way for this year's merger with Chrysler. Daimler-Benz, which was in a state of crisis at the time of Mr. Schrempp's appointment, may be something of an exception, and there are still many obstacles -- in Germany and elsewhere -- which are likely to slow down the Americanization process.

Despite the Olivetti / Telecom Italia and Total / Elf affairs, hostile takeover bids are still rare on the Continent. The furious political and trade union reaction to Krupp's hostile bid for Thyssen in 1997 showed the strength of Germany's attachment to the consensual model of industrial change. But the fact that the bid was made (with American investment banks playing an important role) was a sign of how far thinking in German boardrooms had moved in the American direction. Moreover, even though the bid was withdrawn, it led to an agreed merger between the two companies, facilitating a much-needed rationalization of the German steel industry.

Powerful German trade unions undoubtedly will exert a brake on the speed with which the restructuring of firms and industries can take place. But there is a degree of realism among German union leaders which was notably lacking in their British counterparts during the 1960's and 1970's. Many German companies have been able to negotiate far-reaching changes in working practices without the kind of confrontation with employees that took place in Britain during the Thatcher ite 1980's. A strong incentive for the unions to cooperate is the ease with which German companies can shift manufacturing operations to lower-cost locations outside Germany. Another obstacle to change has been the desire by European governments to protect their national champions from foreign takeovers, but here, too, there are encouraging signs of greater flexibility. France, traditionally the most dirigiste of the larger European countries and the most restrictive in its policy on inward investment, has moved a long way in recent years.

For example, the French authorities have not opposed the Hoechst / Rhone Poulenc merger, nor have they sought to impose conditions on it. How far this French tolerance might extend to more sensitive industries remains an open question. The appearance of a foreign "white knight" in the Total / Elf situation would probably not be greeted with great enthusiasm in Paris, and the same might apply to any outside intervention in the battle currently underway for control of the country's leading banks. Finance Minister Dominique Strauss-Kahn has already said he would like to see the restructuring of the banking industry remain, at least for now, a franco-francais affair. But there is a growing recognition, even in an industry as intimately linked to national sovereignty as aerospace, that old-style nationalism is incompatible with global competitiveness. Aerospatiale, the leading aerospace firm, has already been privatized, and it is a reasonable bet that, despite the current stalemate between the partners, Airbus Industrie will in due course become a normal, shareholder-owned company, just like its main competitor in the U.S. What business can do in the way of restructuring is limited by the social and economic climate in which it operates.

And there is an obvious danger that the center-left governments which hold sway in several European countries will, in the interests of social solidarity, impose new restrictions on managers' freedom of maneuver. But there are powerful economic forces working for greater liberalization. The tide of Americanization is running strongly, and governments would be well advised not to stand in its way. -- From The Wall Street Journal Europe URL for this Article: web Copyright (c) 2000 Dow Jones & Company, Inc. All Rights Reserved.

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