ASSIGNMENTS 1 AND 2
ASSIGNMENT NO.1
With respect to the case study ‘ESC Electronica’, and informed by the relevant concepts and ideas from the international business literature, present a report to Jan that advises him if he should develop his firm internationally, and if so, where and how.
There is no need to find or use additional information on the company or the industry, and no credit will be given for doing so.
ASSIGNMENT NO.2
With reference to relevant academic literature, analyse the international marketing strategy of an organisation of your choice.
Word Count - Each assignment to be a MAXIMUM of 1500 words.
Each assignment will be assessed according to the following four criteria:
i. Presentation of an effective answer
ii. Effective employment of concepts from the course
iii. Effective use of data from the case
iv. Integration of concepts with case data
You are advised to use figures and diagrams, which can be a powerful and effective way of communicating in management contexts, and which should not be included in the word count.
ESC ELECTRONICA
For a man oriented towards action, Jan was now in reflective mood. Haan, production technology director of one of his main customers, had left the conference room in Jan’s new and stylish factory to telephone a colleague, and had left Jan with a major problem.
Jan and Haan had known each other for years, and enjoyed working on technical problems together. They talked the same, straightforward language. Jan did not encounter ‘changes in procurement strategy’, organisational politics, payment delays, of unnecessary specification changes from Haan, problems which sometimes dogged his work with other customers, especially some American and British companies, even their Dutch subsidiaries. Haan found that Jan’s company to be an ideal supplier - never promising what could not be delivered, and always saying if a job was too difficult. They could usually find a way out, perhaps engaging another business to help, with Haan trusting Jan to manage the whole contract.
Two years ago, Haan’s company had bought a plant near Dusseldorf (Germany) from a large industrial group then facing financial difficulties. Two months ago another plant in Southern England was bought from a US company ‘re-focusing’ and rationalising. Both manufacturing plants, had suffered from years of under-investment, rendering them uncompetitive in world markets with rapid product and process developments, and prices typically falling about 15 percent annually.
Haan’s company, a well established designer and manufacturer of electronic security equipment, like most Dutch parents, would normally leave the managements of subsidiaries in other countries to address the issues themselves, well aware of the problems which can result from ‘parachuting’ foreigners into different national cultures. These subsidiaries, however, had also lost the management capability and technical skills to enable them quickly to upgrade their technological bases. Haan had been promoted to the management board to determine overall group manufacturing strategy, to manage the installation of new manufacturing facilities in both these plants, as well as to continue maintaining the production capability of the two plants in Holland.
Haan looked to Jan to help him with the design and installation of the process monitoring and control (PMC) systems, in the same way that he had helped in the Dutch plants over the past 12 years. Jan’s practical help, as well as his friendship, had been invaluable over the years. The two men had, after all, started together: from the local school in the small town where Jan now had his factory, to working as electronics apprentices in USTronics, an American supplier of PMC equipment, mainly for the then booming oil industry. Both had done well there, but neither had liked the atmosphere, especially when individual performance related pay, and ‘management by objectives’ were introduced. Haan left to join the Dutch company after 10 years, in 1972, and Jan left two years later, to set up his own business.
Jan was now presented with the kind of opportunity he had foreseen when he had worked on a 5 year plan some years before. Now it had come, and he was painfully aware that his failure to implement the main marketing element of the plan now left him hopelessly ill-prepared. He may have not only to turn away a massive opportunity, worse, he may have to let down his good friend.
The development of ESC Electronica
With his wife, Helene, expecting their first child, leaving stable employment to set up on their own was not an easy decision, but three things helped. First, the outlook at USTronics was not so good. The company was slow to respond to new technologies being employed in many competitor’s products, was losing its previous near-monopoly position, and was not prepared to adapt to large potential customers in Holland, the most obvious being in gas and in water control. It had already cut back in Canada, and looked likely to in Holland. Second, Jan and Helene wanted to return to their small home town, where Helene’s family had a house with a small garden, a much better environment for a small family than the city apartment where they lived. Third, colleagues and former colleagues, like Haan, many who had moved to good positions in other companies, said that they could give him work straight away.
In September 1972, two months after his 30th birthday, and with a birth due in November, Jan quit USTronics, and he and Helene established ESC Electronica in two rooms of their new home with their entire savings. Helene did the bookkeeping and the talking with the bank; Jan’s father, just retired, helped out in the office , and Jan saw the clients and did the development work. Jan’s engaging manner, straightforward dealing, technical competence, and reputation, most importantly among the many former colleagues scattered throughout Dutch manufacturing industry, in addition to his supreme effort driven by the fear of failure, proved to be successful, and much more quickly than he had anticipated. By the time that baby Frank, was born, he had secured 18 months work not only for himself, but also for two youngsters, one he recruited from USTronics, and one straight from school, to help cope with the work. In December, there were three shareholders: Jan and Helene each held 45%, and Frank a further 10%. Now, Marguereet (born in 1974) and Geert (1975) also hold 10% each.
‘The reason the business exists is for the children. I would not have started the business if I wasn’t going to have a family - it only exists to secure them a future. There is no other point.’
Jan found that his clients, the manufacturing managers of industrial plants, wanted to ‘offload’ the whole of their PMC problem onto a firm that they could trust. The size of each contract was therefore larger than he had initially anticipated, and grew as his reputation and competence grew. Customers included manufacturers of autos, auto parts, electronic products, volume parts for the aerospace industry, and the new electric clog industry. The business grew rapidly in those initial years. By 1976 it employed 18 apprenticed engineers and 6 apprentices. They bought and converted an old barn into a workshop.
Then came some difficult years. A worldwide recession, and an oil crisis, combined with the non-competitiveness of much of Dutch manufacturing industry as the Dutch Guilder became overvalued by the discovery of large gas reserves off Holland’s coast. Dutch manufacturing output fell 38% between 1975 and 1980, many manufacturing (including all auto and textile) plants closed, and investment in new manufacturing equipment almost ceased.
At about this time, Jan saw how dependent he was on his ‘old friends’ in the industry. He had never had an organised marketing approach - business arrived from his old contacts, from referrals, and with a large proportion (about 70%) being repeat business from satisfied customers. Nearly all his customers were located within 2 hours drive of their home. Two engineers were transferred to help search for new work. New customers were found, many in other parts of Holland, Belgium, Southern and Western Germany, and in the United Kingdom. These contracts, however, particularly those further away, were harder to win, required detailed contractual negotiations, and were more prone to result in misunderstandings, difficulties, arguments, and renegotiations.
In addition, the detailed onsite help that the engineers were used to giving customers, often without costing them carefully, was much more difficult and costly at greater distances. This help had previously been seen as a way of developing better knowledge of customer’s manufacturing problems, which would ultimately be rewarded with further contracts. This process did not work with many of the new customers, and over time, losses were seen on much of the new business. Jan and his engineers were spending more and more time away from home. While Saturdays with the children disappeared, he managed to keep his Sundays: having been actively involved in the town’s main church since his return, he kept each Sunday as a family day.
During this period of losses, Jan managed to keep the company running by tapping into reserves built up during the first few years. Now, he attributes his survival during this period to four factors:
‘First, I thank God who helped me keep my strength. Second, I thank my wife who never lost faith in me or our business. Third, I thank my colleagues and friends in the business who stood by me where they could. Fourth, I am thankful that I never borrowed one guilder in my life.’
Jan believes that good business requires good foundations.. he recalls how he saw many businesses without good foundations collapsed during this period. He sees these as being:
‘First, there are the relationships you form with your colleagues and with your customers. There must be harmony with both. They trust you, and you are able to trust them. Second, there is cash. Without cash, you owe money, and this is bad.’
Despite these good foundations, 6 employees had to be asked to leave:
‘To this day, that saddens me deep inside. I feel that I betrayed these people, good people. They put their trust in me, and I let them down. That is very bad, very bad. But at that time, I thought that it was necessary. If the business had folded, everyone would have had to leave.’
He continued, however, to take on new apprentices:
‘We owe this to the town. The future of the town, our future, is in the young people. If they have no-where to go they lose hope, and without hope, they are lost. We must stand by them.’
With tight control of expenses by Helene, employing a more accurate approach to the costing of new contracts, and a new professionalism in the marketing approach, the business grew rapidly when the economy recovered in the early 1980s. ESC Electronica was well placed for a massive catching up in investment expenditure - its expertise was now well established among a range of industries, and it was one of the few suppliers in the west of the country. Now, however, they were cautious about the growth. He never took on more than two new employees and two apprentices in any year.
‘That way, you can get to know them well, and they become one of the family.’
He was also concerned to replenish the cash reserves for the business. A number of developments in the industry, however, also worked to the company’s advantage.
Technological changes in manufacturing
In recent decades, globalized competition, including growing competition from Japan and newly industrialized nations in South East Asia has been compelling European manufacturers to adopt more and more efficient manufacturing processes in order that they can compete on world markets. These can involve fewer stages of manufacture in the overall process, continuous rather than batch systems, use of robots to increase speeds and precision as well as lowering costs, and ‘just in time’ systems which lower stocks. The cost of designing and developing these systems is greater, and the consequences of any failure in the process is more severe.
PMC systems help control the fine balances necessary to maintain an efficient flow of product through a manufacturing system, and quickly warn of errors or breakdowns and help correct them. Electronic hardware, such as sensors, monitor equipment, materials, parts, product, and operator performance, and feed back information on displays and in machine control signals. This information can be processed locally, centrally, or through networked systems, with ‘embedded software’ within processors at different plant sites, or with software written for a central or zoned control function. Software and hardware can use ‘standard’ items, but, depending on the specific needs, will also usually require the use of specialised electronic hardware, involving chips containing embedded software, mounted on printed circuit boards (PCBs).
While PMC equipment is increasingly included within machinery, manufacturers increasingly wish to integrate this information within their overall process, and tailored to their specific requirements. Different machines also often employ different data systems (the most obvious choices are between analogue and digital data) which need to be managed, perhaps through the use of special processors, for common processing on a single system. The overall system and software design has to be tailored to the specific manufacturing needs, which involves a thorough understanding of the technical requirements, the allowable tolerances, and the overall economics of the system. Developments in PMC systems therefore reflect the overall trend in the electronics industry for integration of hardware and software technologies, which is requiring suppliers to have an integrated capability in both. A number of other trends are forcing greater investment in PMC equipment:
• A worldwide phenomenon of shortening product life cycles means that manufacturing equipment is replaced more frequently, with regular modification and upgrading as well. ‘Flexible manufacturing systems’ enable easier and more rapid modifications and changes, but the overall process still needs to be reengineered, and modifications to the PMC systems made.
• Rapid new materials technology developments include the use of new polymers, metals, and ceramics, in the construction and coating of parts. Changing materials might involve minor modifications to the manufacturing process, or complete reengineering of the whole system. New electronic devices are needed to monitor and control their fabrication, transformation and fitting into the manufactured product. Miniaturisation often requires manufacturing automation, with new types of sensors and controllers.
• New hardware technology is enabling improvements to the PMC process itself. For example, optical, sonic and biosensors can detect the state of hardware, flow rates, and stock levels. Embedded software within microchips on printed circuit boards processes and transmits data and instructions. Optical fibre cables enable cheaper and better data transmission through the manufacturing process.
• Manufacturing systems themselves are being revolutionised, perhaps facilitated by the use of new materials, or of new automated technologies, such as robots. Not only do the changes involved often require the redesigning of the PMC systems, but automation tends to reduce the scope for human, (as against automated) PMC.
Manufacturers’ changing demands on suppliers
Manufacturing accounts for a declining proportion of European GDP, and manufactures in Europe tend to be of more and more sophisticated products, with lower value-added items increasingly sourced from areas of the world with lower labour costs. Industrial concentration has taken place among manufacturers, especially of higher volume products. Through merger (particularly noticeable with ‘white goods’ and automobile manufacturers) and demise (such as in consumer electronics) there are now fewer and fewer manufacturers in each market segment, but each that remains increasingly manages more and more plants in a wider number of locations in Europe and beyond.
In an effort to remain competitive, the nature and structure of manufacturers’ organizations has been changing, including a greater propensity to outsource manufacturing and industrial services not considered to be ‘core’. Manufacturers are focusing their skills onto those areas where they believe that they can maintain the greatest market advantage, for example, in marketing, in product design, in product technology, or in procurement. This yields greater flexibility to adapt to rapid changes and developments in competition or customer demands, with many of the problems and risks of change passed on to suppliers and subcontractors. It also reduces their overhead costs, with skills and facilities not in continual use no-longer being maintained ‘in-house’.
The extent of subcontracting of PMC system design depends upon industrial circumstances, and each manufacturer’s particular choice. Bosch, Mitsubishi, Philips, Sony and Volkswagen all subcontract much of their manufacturing but retain their PMC system design and installation ‘in house’ wherever possible, though routinely employ consultants to help ensure access to the latest technological developments. Many slightly smaller companies, but also the subsidiaries of giants such as AEG, BMW, Electrolux, GEC, and General Motors, tend to subcontract PMC system design and installation. If subcontracting PMC design and installation, there are also choices. One approach is to contract specialist engineers to design a technical specification, and then use ‘in-house’ or other contract managers to manage the subcontracting of the installation of the system. More frequent changes of more sophisticated systems, often across different locations, tends to result in greater scope for communication problems and misunderstandings. Rigidity contractual arrangements have been found to be ill-adapted to such complex and fluid situations.
The demand for specialists able to design and manage the installation of PMC systems has therefore been growing. These specialists need a compete range of high level but practical competencies in different forms of electronics and engineering, for hardware and software, within a framework of interdisciplinary teams. PMC specialists also need to be able to retain the complete trust of customers, much of whose competitive performance might depend upon them; The experience of a long working relationship within which expectations have been met without disappointment is likely to be more important than apparent technical competence. Such trust is built slowly, but can be quickly destroyed. Industry reputation is most important for establishing new relationships; Retaining customers requires the development of deep understanding of customer’s manufacturing problems and issues, and the capability of being able quickly to respond to problems and developments ‘on-site’ as they occur. Usually, this tends to be facilitated by close physical proximity to the customer.
The growth of ESC Electronica
By 1992, Jan was well aware of these industrial developments - indeed, the steady growth of the business during the 1980s had largely been based upon them. He was now employing 55 people with a range of different specialises.
The reputation of ESC had grown with every satisfied customer. His initial contacts had often adopted positions of increasing seniority in customer’s businesses, and Jan often met them when leading or participating in functions within a number of industry organisations, with whom he was heavily involved, being a founder member of one. The business had developed largely through individual customers demanding more and more - both because of their increased and more frequent investment in PMC equipment, and because they were increasingly relying on ESC to take complete responsibility for the job. Jan had responded in two ways.
First, he had invested not only in more people in order to take charge of each specialist area, but also in manufacturing facilities for the assembly of printed circuit boards, and for their mounting into completed units. The latter facility enabled ESC to take greater control of the quality and reliability of the systems it was installing, to respond more quickly and adaptively to customer’s needs, and to adopt a more visibly ‘value added’ role within customer’s operations with ESC brand marked ‘boxes’ positioned around customer’s plants.
Second, he had built up a strong network of cooperative relationships with other businesses with whom he felt he could work with confidence. They helped install the systems, with aspects of the development and integration of software, in the supply of particular types of hardware, and in the construction and assembly of his ‘own’ parts. Customers knew that they were, through ESC, accessing a strong network of relationships, and they had a good assurance covering the whole task. It was of significant value for customers to have ESC control and manage the whole job rather than to try to coordinate all the different suppliers, relationships and technologies themselves.
Helene’s job had grown massively as well. The complexity of the business’ work itself, the large number of suppliers and other companies involved, and regular changes to job specifications had required the development of highly efficient cost, budgeting, pricing, billing and control systems. They were well aware, from their experiences during the 1970s, of the effects of getting it wrong. She had learned new computerized systems, attending a number of courses organised at a local college and through industry organisations, and now employed a trained book-keeper.
A number of organisation practices helped the growth of a complex business, including a culture of compete openness within the company, which matched Jan’s own character. Meetings, usually quite short, involving all those in the building, were held daily at 8;30 a.m., to discuss current issues and future plans. Interchange of ideas and views was also encouraged over lunch, and the canteen in the new building had been designed to facilitate this. Visitors, usually actual or potential customers, subcontractors or suppliers, were welcome to join these discussions over lunch, and often did.
As the children grew up, they also became more and more involved in the business. All worked in it during university vacations, and to Jan’s delight, began to show great interest in continuing to manage the company. All attended good universities: Frank studied law, and helped with a number of contractual issues, including the implications of new legislation on employment, working conditions, and the environment. Marguereet had studied business, and had helped with financial plans and budgets, the organisation of the commercial operations, and had examined ways of dealing with customers in England, Belgium and Germany. Being fluent in English, she often helped her father with his work with customers in England. Geert had studied modern languages, and his fluency in German and interest in German literature and culture meant that he sometimes helped with work associated with German customers.
A 5 year plan
In 1992, mindful of the exceptional growth that the business had been experiencing, of the way in which the business was increasingly driving him, rather than him the business, of the industry changes underway, and urged by his daughter, Jan, Helene and Marguereet prepared a 5-year plan for the business. First, they set out what they wanted to achieve:
• Maintenance of a solid business to give a secure future for the children.
• Positions for the children should they, as seemed likely, want them.
• Continued growth of the company, based on the home town.
• A means for Jan and Helene to retire within 10 years.
Next, they identified three main ‘driving forces’ in the business to which they felt that ESC would have to respond:
1. Customers would want more and more from them, requiring a further broadening of the technological base within the business, and the ability to offer close support to customer’s factories in different parts of Europe.
2. Gaining new customers would involve new local bases in different locations, in order to maintain the close customer relations and operational knowledge and support that were the basis of the business’ success. There was already good business to be gained in England, in Belgium (particularly the north) and in Germany.
3. Retaining the trust in the quality of the business’s work that was needed to keep established and to gain new customers would require substantial new investment in manufacturing equipment. In part, this would help retain sufficient control over the overall PMC systems installed. In part, however, customers were also demanding SMT (Surface Mount Technology) technology on the PCB boards installed, and it was becoming increasingly difficult to resource components for other than SMT PCB boards. It would therefore be necessary to invest in a new factory, including clean manufacturing environments and SMT assembly equipment.
It was therefore decided that, as ESC continued to grow over the coming years, it would:
• Continue to grow through more employees, recruiting also to widen the skill base, especially in software engineering and in manufacturing.
• Continue investment in new manufacturing facilities, including a new factory (as cash resources allowed), and clean room facilities.
• Watch the developments in SMT carefully, and if necessary, invest in SMT manufacturing capability, but not ‘follow the herd’ into SMT. Until then, ESC would use one or two trusted subcontractors for SMT assembly.
• Open ‘branch’ service depots in South Holland / North Belgium; in Southwest Germany; and in Southern England. These branches would be established and managed by the three children, as they completed their university education.
Subsequent developments
Growth during the 1990s was fuelled by the growing fashion for manufacturers to ‘buy-in’ the supply of specialist skills and services, a greater demand for ISO 9000 quality accreditation (ESC had led the way in quality standards, and Jan was on two industry committees associated with this), and high rates of investment in new high technology manufacturing facilities. ESC’s growth was higher and more volatile than had previously been experienced, with contracts being larger and more complex, and the everyday business took up much of Jan and Helene’s time. Personnel numbers grew as to plan, but other aspects of the plan were not actioned fully as quickly as had been anticipated, and were subject to unexpected events.
A number of subcontract businesses which had, encouraged by their customers, invested in SMT manufacturing facilities, went out of business. The technology itself was very expensive, was not always well proven, and required new manufacturing approaches, for example in cleanliness, in the use of new chemicals, and in the use of automated part location and positioning, through computer controlled optical sensors. Much of this equipment was difficult to resource, expensive, and required new skills to use. Jan recruited a technician experienced in these methods from one of these businesses. In March 1996 one of ESC’s SMT subcontractors folded, having only recently purchased the latest SMT manufacturing equipment. In a rapidly made decision, Jan bought all this equipment, barely used, from the industrial court at about half original cost.
Now they needed somewhere to put it. Frank, now with a large commercial law firm in Brussels, helped negotiate a site on a new industrial park on the edge of the town, and the design and commissioning of a new factory for entry in March 1997. Clean-room facilities were included, and manufacturing to ISO 9002 standards was to be possible. Marguereet, who had now graduated, was now helping with the day to day management of the company, and was investigating and making initial contacts with potential new customers, including subcontract assembly work to fully employ the equipment.
Even though the expansion of the manufacturing facilities depended on growth of the customer base, and that this in part depended on a geographical expansion, the opening of branch offices was always to be subject to the willingness and ability of the children to do it. Jan and Helene placed no pressure on the three children to come into the business, since they believed that they ‘had to make their own lives’. Frank was now keen to complete his legal training, and gain useful and wide international commercial experience, before, possibly, joining the business. Geert was now intent on becoming a teacher. In May, Marguereet, who had shown most involvement with the firm, and with whom Jan enjoyed working, told her parents that she would be moving to live with her boyfriend of four years, that she was expecting a baby, and that they had decided to raise a family.
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